A GST-registered developer bought land for $300,000 from a seller who was not registered for GST, built a house and sold it for $750,000. The parties agreed in writing to use the margin scheme. What GST is payable on the sale?
Correct Answer
C) $40,909
Under the margin scheme, GST is one-eleventh of the margin: the sale price less the price the developer paid for the land. The margin here is $750,000 − $300,000 = $450,000, so GST is $450,000 ÷ 11 = $40,909. Construction costs are not deducted in working out the margin. Where the margin scheme applies, the buyer of new residential premises generally withholds 7% of the contract price at settlement and pays it to the ATO as a credit against the developer’s GST.
Why This Is the Correct Answer
The margin is the sale price less the developer's acquisition cost of the land: $750,000 − $300,000 = $450,000. GST is one-eleventh of the margin, so $450,000 ÷ 11 = $40,909.
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