GST margin scheme for property: When to use it & how to calculate your GST liability
Keep more from your property sale. See when the GST margin scheme applies and how to calculate what you owe.
Written by Naomi Lai— Small business & finance writer. Read Naomi's full bio
Published Thursday 9 July 2026
Table of contents
Key takeaways
- Use the margin scheme to work out GST on the margin for eligible property sales instead of on the full sale price.
- Check margin scheme eligibility, agree to it in the contract, and confirm your purchase history supports using the scheme.
- Choose the consideration or valuation method for your margin scheme calculation and keep valuation evidence that meets Australian Tax Office (ATO) rules.
- Save contracts, valuations, and settlement statements, then report the sale and GST on your business activity statement (BAS).
What is the GST margin scheme?
The GST margin scheme is a way to work out the GST on an eligible property sale based on the margin you make, rather than on the full sale price. If you sell a property related to your business, you may be eligible to significantly reduce your tax liability with this scheme.
Instead of paying GST on the property's total transaction, you would pay tax on 1/11th of the margin, the difference between the property's sale price and its original purchase price. For many Australian property developers and investors, this can have significant tax benefits.
However, you can only apply the margin scheme if the property sale is subject to GST. For example, if you have a property development business, you might purchase a warehouse and make substantial renovations. If you then sell it as a taxable commercial property, you can use the margin scheme to calculate the reduced tax rate. The scheme can apply to commercial, residential, retail, industrial, and vacant land sales that are subject to GST.
A few terms come up often when you work with the scheme, so it helps to be clear on what each one means:
- Residential premises: property that's occupied or capable of being occupied as a residence.
- New residential premises: property not previously sold as residential premises, including premises that have been substantially renovated or newly built.
- Vacant land: land with no buildings on it.
The ATO's GST property decision tool can help you determine your eligibility and work out the margin.
Who can use the margin scheme?
It's important to determine whether a GST property sale is eligible for the GST margin scheme, and the buyer and seller must both agree to the terms in writing. There are several factors that determine your margin scheme eligibility. The scheme is most common for GST on development property, new residential property, redeveloped commercial property, and situations involving vacant land and GST.
ATO margin scheme eligibility requirements
To be eligible as a seller, you generally need to meet the following conditions:
- You're registered for GST.
- The property sale is subject to GST.
- The property sale is part of your business, such as commercial real estate and residential development.
- You and the buyer have a signed, written agreement to use the margin scheme before settlement.
Registering for GST is generally required once your business turnover reaches the $75,000 GST registration threshold.
Situations that may make you ineligible
You generally can't use the margin scheme if you were charged the full GST when you originally bought the property. Beyond that, you may not be able to use it if any of the following apply:
- You purchased the property as fully taxable.
- You were not GST registered or required to be registered at the time of sale.
- You inherited the property from someone who was not eligible for the margin scheme.
- You bought the property from another entity in your GST group that wasn't eligible to use the margin scheme and originally purchased the property from outside the group.
- You acquired the property through a GST joint venture where the joint venture operator bought it through an ineligible sale.
- The sale qualifies for going concern GST-free tax treatment.
When in doubt, you can apply for a private ruling with the ATO or consult with a tax adviser to determine your margin scheme eligibility before signing a contract. They can help you understand the intricacies of a specific property sale.
When not to use the margin scheme
Even when you're eligible, it might not be practical to use the ATO margin scheme. It's generally not worth it when the commercial or compliance disadvantages outweigh the tax benefits. Here are some situations in which it might not be worthwhile:
- Your profit margin is small. The GST savings might not be worth it compared to the added complexity of contracts and reporting requirements.
- The buyer wants to claim GST credits. Buyers can't claim input tax credits on GST margin scheme purchases, which may force a lower sale price that outweighs the tax savings.
- You prefer simpler reporting and lower risk. The GST margin scheme can make contracts and reporting more complex.
- Your records or valuations are incomplete. A lack of documentation increases compliance risk and may lead to ATO penalties and reduces the practical benefits of the scheme.
How to calculate GST with the margin scheme
There are two methods you can use for an accurate margin scheme calculation: the consideration method and the valuation method. Regardless of the method you use, you report the property sale and GST payable in your BAS for the period when settlement occurs.
1. Use the consideration method
This is the most common method. It generally applies to properties acquired on or after 1 July 2000, when Australia adopted the Goods and Services Tax.
In this case, the margin is simply the difference between the consideration you receive for the sale (the sale price) and the original purchase price of the property, both excluding GST. You then calculate GST as 1/11th of the margin.
2. Use the valuation method
In some cases, the margin scheme can also apply to an approved valuation, but this method is less common. It's usually for properties purchased before 1 July 2000. The process is identical, but instead of using the original purchase price to calculate the margin, you use an approved valuation. Ensure you keep detailed records of the valuation to meet ATO requirements.
Example ATO margin scheme calculation
A small property development business purchases a plot of land for $600,000 from a private seller. The seller is not GST registered, so no GST credits are available on the purchase. The property development business then spends $360,000 to build a townhouse on the land and claims GST credits for $32,727 (1/11th of $360,000). When the townhouse is complete, the property developer sells it with the land for $1,000,000 and agrees with the buyer to apply the margin scheme.
The margin is: $1,000,000 (sale price) - $600,000 (purchase price) = $400,000
And the margin scheme calculation is: 1/11 x $400,000 = $36,364
Because GST withholding at settlement applies, the buyer withholds 7% of the sale price ($70,000) and pays it directly to the ATO. The property development business reports the sale and $36,364 in GST in its BAS, receives the withheld credit, and gets a refund of $33,636.
Once you've worked out what you owe, you can lodge your BAS to report and pay the GST.
How GST at settlement works
The ATO adjusted the margin scheme rules on 1 July 2018. Previously, the seller collected GST as part of the purchase price at settlement and sent it to the ATO.
Now, if GST withholding under the margin scheme applies, the buyer pays part of the contract price to the ATO, which reduces the cash you receive at settlement.
You still report the property sale and GST in your business activity statement (BAS) and the ATO applies the withheld amount as a credit. Depending on the final GST calculation, you may receive a refund or need to pay the difference. You typically receive this refund shortly after lodging your BAS, depending on your reporting cycle.
You can find the reporting and payment requirements that apply to your sale in this rundown of GST and BAS for Australian small businesses.
Records and reports needed for GST
The ATO requires detailed records that demonstrate how you calculated the margin and followed GST margin scheme rules.
For one, you need a written agreement with the buyer to use the margin scheme. There's no set format for this document, but it's usually included as a clause in the sale contract. It must clearly identify the property being sold and contain both your and the buyer's signatures.
You must also report the sale and GST amount on the BAS for the period in which the property sale took place. Keep all your GST margin scheme records for at least five years, including contracts, settlement statements, calculations, withholding notices, and the property valuation if you used that method.
These records support how you worked out the margin and the GST payable. Poor or missing documentation can increase compliance risk and may trigger ATO reviews or audits. If the ATO can't verify your calculations, it may reassess the GST and impose penalties or interest.
Simplify the GST margin scheme with Xero
Applying the GST margin scheme can be complex and involves settlement withholding, BAS reporting, and GST credits. Accounting software like Xero helps you clearly reflect margin-scheme treatment in your BAS. With accurate records and real-time reporting, you can be confident that your GST obligations are correct and reduce compliance risk.
FAQs on the GST margin scheme
Here are answers to some frequently asked questions about Australia's GST margin scheme.
When do the buyer and I need to agree to the margin scheme?
You and the buyer need to agree to apply the margin scheme at or before settlement, with a written agreement included in the sale contract. Without that written agreement at settlement, you generally can't apply the scheme, though you can ask the ATO for an extension to formalise it.
Does the margin scheme apply to vacant land and subdivisions?
Yes, the margin scheme often applies in cases involving subdivisions or vacant land and GST. For example, it applies if you purchase land without GST, subdivide it, and sell it as individual lots. Whether you can apply it still depends on your eligibility, considering factors like how you acquired the land and if you claimed GST credits on the purchase.
Can I claim input tax credits on costs under the margin scheme?
Yes, but only some costs. You can't claim a GST credit on property acquired under the margin scheme, but it doesn't prevent you from claiming input tax credits on eligible business expenses like construction, materials, and professional fees.
What costs are excluded from the margin?
The margin scheme only applies to the difference between the original purchase price and current sale price. You can't add other costs to reduce the margin, even if they significantly impact your profit. Here are some costs to exclude from your margin calculation:
- Development or construction costs: building, renovations, labour, or materials
- Professional fees: architects, engineers, surveyors, or lawyers
- Holding costs: interest on loans, council rates, or bank fees
- Property acquisition costs: stamp duty, registration fees, or title transfer costs
- Selling costs: real estate agent commissions, advertising, or marketing expenses
How does GST at settlement affect my BAS and cash flow?
The buyer withholds an amount of the sale price at settlement (7% under the margin scheme), so you receive less cash upfront. Because this is an estimate and the ATO calculates your actual tax liability when you lodge your BAS, you often get a refund.
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