Property Development & The Margin Scheme
Are you a builder / developer of residential properties?
Did you know that you might be eligible to use the margin scheme for GST on the sale? Did you know you can generally claim GST credits for your construction costs and purchases related to the sale?
Around Australia, many new residential developments are under way and GST may be applicable to the cost to develop the properties and the sale of the properties. Depending on when the property was purchased, depends on what method may be used to calculate the GST on the sale but generally speaking, if a cost is subject to GST, it can be claimed.
Broadly speaking, the margin is the price difference between the sale and purchase price. There are two methods you can use to calculate the margin and depending on when the property was purchased, depends on which method would be used. Usually, if the property was purchased after 1 July 2000, the consideration method would be applied. Prior to 1 July 2000, you would normally use the valuation method.
The margin scheme may be used if you are registered for GST (or required to be registered for GST) and if:
- you are selling property in the course of the enterprise and GST applies to the sale (ie, a taxable sale)
- you acquired the property before 1 July 2000, or
you acquired the property after 1 July 2000 and the person who sold you the property met one of the following:
- was not registered or required to be registered for GST
- sold you old residential premises
- sold you the property using the margin scheme
- sold the property to you as part of a GST-free going concern
- sold the property to you as GST-free farmland.
You cannot use the margin scheme if you are selling a property that you either:
- purchased as a taxable sale and the GST on the sale to you was not calculated under the margin scheme
- inherited from a person who could not use the margin scheme
- obtained from a member of the same GST group who cannot use the margin scheme
- obtained, as a participant in a GST joint venture, from the joint venture operator who cannot use the margin scheme.
As you develop the property, you can generally claim the GST on the development costs in your Business Activity Statements (assuming the cost attracts GST). This may include things such as building contractors, fencing, materials, landscaping and more.
Developers also tend to need to report the cost of development vs the running costs of the business differently to each other in the accounts system, produce project reports such as the cost of each property or the overall development and track and prepare finance claims. We’ve had experience in this sector (and others that require project reporting) and understand that each business has different requirements. As such, we do not offer a one size fits all approach but work with you to develop a system that works; be it from the ground up, working with an inherited system or perhaps even a combination of both.
For specific advice relating to your specific situation, please contact your accountant or contact us for further discussion.