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MelissaD83(Enthusiast)Enthusiast
30 Aug 2021

Hello,

I am doing the GST Margin Scheme for the first time and wondering if I can get some confirmation that I am doing it correctly.

My new client is a sole trader and registered for GST, he purchased a vacant block in Sept 19 for $300K with the intention to construct two units. The purchase contract states the GST margin is to be used, and the cost includes GST unless otherwise specified. I have cross referenced and can see that the seller is also a sole trader, registered for GST.

The client has not been lodging quarterly BAS to claim the GST on the construction costs and operates for revenue recognition.

Would it be best for me to calculate the net GST from the construction costs, purchase of land and sale of the units and lodge under the June Qtr 21 when the units were sold?

I am a little skeptical though that this would be revenue recognition because he works a fill time job?

Any advice would be greatly appreciated.

Thank you,

Mel

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1,095 views
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TonyATO(Community Support)Community Support
31 Aug 2021

Hi @MelissaD83

You have four years to claim GST credits, so you can claim them in the June quarter because its within four years. You won't be able to claim a credit for the GST that was included in the purchase price of the land because GST can't be claimed when the margin scheme is used.

:)

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Most helpful reply

TonyATO(Community Support)Community Support
31 Aug 2021

Hi @MelissaD83

You have four years to claim GST credits, so you can claim them in the June quarter because its within four years. You won't be able to claim a credit for the GST that was included in the purchase price of the land because GST can't be claimed when the margin scheme is used.

:)

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MelissaD83(Enthusiast)Enthusiast
31 Aug 2021

Hi Tony,

Thank you for getting back to me. This topic has certainly caused me a bit of confusion.

Can I please just clarify?

So my bought the land for $300K and put two units. The total construction was $360K inc GST he then sold one unit prior to 30 June 2021 for $425K including GST.

The June Qtr BAS would be;

G1: $425,000 - $150,000 (50% of the land purchase) = $275,000

1A: $275,000/11 = $25,000

1B: $360,000/2 (50% of the unit construction) = $180,000/11 = $16,364

Total payable: $8,636

Or can I claim all of the construction costs ($360K) in the June Qtr which in this case would result in a refund, however in the following year when the second unit is sold they will have to pay the GST and not have any of the construction costs to help reduce that liability?

Also, if the client decides not to sell the second unti and rents it out does the margin scheme get removed and then if they were to sell in the future it would be subject to capital gains?

Obviously, if we claimed the credits on the construction and then decided to keep and rent it we would have to go back and make an adjustment to refund the credits on the construction.

I hope that makes sense, I am just wanting to make sure I am understanding everything I am reading properly.

:) Mel

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