Square A1 · Tax · Rules from the ATO
GST and the margin scheme on a land sale
A land sale carries GST only when the seller is registered, or required to be registered, for GST and the sale is a taxable one; someone whose property dealings are private, such as building or selling the family home, generally does not have to register for GST. Where GST does apply, an eligible seller can use the margin scheme, which works the GST out on the difference between the buying and selling prices instead of on the whole price, provided buyer and seller agree to it in writing before settlement.
General information, not tax advice. GST on property is the ATO’s to rule on, and its GST and property pages, listed at the foot of this sheet, are the place to check. The ATO also publishes a GST property decision tool.
First question: who is selling
The ATO says GST applies to some kinds of property sale when the seller is registered, or required to be registered, for GST. Someone who is not a business can still be required to register: when their turnover from property and other taxable sales passes the registration threshold, or when what they are doing counts as an enterprise. The ATO’s example of an enterprise is buying land meaning to develop it and resell it at a profit, and it adds that even a one-off property transaction may count.
As at October 2026 the threshold is a GST turnover of $75,000, or $150,000 for a non-profit body. When working out that turnover, the ATO leaves out sales of existing residential property, sales made for no payment that are not taxable (unless they are made to an associate), private sales that have nothing to do with an enterprise (the family home is its example) and residential rent.
| The owners | What they did | The ATO’s answer |
|---|---|---|
| Steve and Kate | After the council allowed smaller lots, they bought a block intending to split it in two, then sold both lots at a profit. | An enterprise; GST at settlement may apply. |
| Astrid and Bruno | They split their own large suburban block so their daughter could build a house to live in next door, and she paid the costs. | Not an enterprise; GST at settlement does not apply. |
Three ways a sale can be treated
If the seller is registered or required to be, the ATO sorts the sale into one of these, or a mix of them.
| Treatment | GST on the sale | Credits for costs of the sale | The ATO’s example |
|---|---|---|---|
| Taxable | Payable | Can be claimed, under the normal rules | New residential property, commercial property |
| GST-free | Not payable | Can be claimed, under the normal rules | A supply of a going concern |
| Input taxed | Not payable | Cannot be claimed | Existing residential premises |
Two points from the ATO matter on land. Its meaning of residential property, the kind whose resale is input taxed once it is no longer new, does not include vacant land. And farmland has its own rule.
Farmland that stays farmland
The ATO says a sale of farmland is GST-free if it is a freehold interest, the land was used for a farming business for at least the 5 years immediately before the sale, and the buyer intends to use it for a farming business. The fixtures go with the land and share its treatment: the ATO names residential property, fences, shearing sheds, workers’ cottages and dams. The main residence is included, as long as private use of it does not take away the land’s essential character as farmland.
Subdivided farmland that was farmed for at least 5 years can also be GST-free when the sale is freehold, the lot can be used for housing, and it goes to an associate of the owner for nothing or for less than its market value. A farmland sale that does not meet every condition of one of these two routes may be taxable.
The margin scheme
The margin scheme is the ATO’s concessional way of working out GST on property sold as part of a business. Normally the GST on a property sale is one eleventh of the whole sale price. Under the margin scheme it is one eleventh of the margin. It can be used only when the sale is taxable and the seller is eligible, and the seller must have a written agreement with the buyer to use it, made before settlement unless the ATO allows more time.
The agreement has no set format. It has to be signed by both parties and clearly identify the property, and it can sit in the contract itself; the ATO notes that most contracts have a tick box for it. The ATO also says it has no power to apply the scheme where the parties have not agreed to it.
Working out the margin
For property bought after 1 July 2000 the seller uses the consideration method: the sale price less the original purchase price. Property held from before that date can use either that or the valuation method, which takes the sale price less the value in an approved valuation, usually as at 1 July 2000. Under the consideration method the sale price includes any settlement adjustments in the contract, and the purchase price leaves out development costs, legal fees, any options bought, stamp duty and other purchase expenses.
The ATO’s own worked example is a vacant block. Diane, who is registered for GST, bought it from a seller who was not, added roads and other services, and sold it:
- Sale price$720,000
- Less what she paid for the land$500,000
- Margin$220,000
- GST: one eleventh of the margin$20,000
The buyer pays for the concession in one way: the ATO says a buyer cannot claim a GST credit for a purchase where the margin scheme was applied. A buyer who must withhold GST at settlement withholds 7% of the contract price on a margin scheme sale, which is set out on the withholding sheet.
When the scheme is not available
The ATO lists these cases, in this order:
- the seller bought the property in a fully taxable sale that did not use the margin scheme;
- the seller was not registered, or required to be registered, for GST at the time of the sale;
- where the sale was made on or after 17 March 2005 and the seller:
- bought the property fully taxed and the margin scheme was not used;
- inherited it from someone who was not eligible to use the scheme;
- took it from a fellow member of a GST group who was not eligible, and who had bought it from outside the group;
- took it, as a participant in a GST joint venture, from the joint venture operator, whose own purchase was not eligible;
- for property bought or contracted for from 9 December 2008, where the previous owner was not eligible to use the scheme and the seller acquired it:
- as part of a going concern;
- as GST-free farmland; or
- from an associate for no payment.
Because eligibility can depend on the owner before you, the ATO says a seller generally cannot use the scheme if the previous owner could not, and that a private ruling is available to anyone unsure.