The GST margin scheme — Division 75 of the GST Act — lets you pay GST on the margin of each sale (sale price minus what the land cost you) instead of on the full sale price. On a new townhouse selling for $1.35M off a proportionate land cost of $300k, that's roughly $95k of GST instead of roughly $123k. Multiply across six units and the scheme is worth hundreds of thousands of dollars of net realisation — which is exactly the number your lender funds against.
This is general information, not tax advice — the scheme has traps, and your accountant should confirm eligibility before you exchange on anything. But you need to know it exists before you buy the site, because that's when it's won or lost.
Why your lender cares about a tax election
Development lenders size facilities against gross realisable value net of GST — net proceeds are what repay the loan. GST is often the single biggest deduction between the headline GRV and net realisation.
Take the six-townhouse project: GRV $8.1M. Without the margin scheme, GST at one-eleventh of every sale strips about $736k. Under the margin scheme, with land acquired at $1.8M, GST is one-eleventh of the $6.3M margin — about $573k. That's $163k more net realisation from the same sales. In the lender's model that improves LTGRV, lifts the interest cover, and fattens profit-on-cost — the three numbers that decide your leverage. Same bricks, better deal.
Eligibility is decided the day you buy
The margin scheme isn't available just because you'd like it to be. Broadly, you can apply it only if you acquired the property in an eligible way:
- the vendor sold to you under the margin scheme; or
- the vendor was not registered for GST — a private landowner, typically; or
- the supply to you wasn't fully taxable — for example existing residential premises, which are input-taxed.
The classic own goal: buying an eligible site from a GST-registered developer as a fully taxable supply, claiming the input tax credit, and discovering the margin scheme is now unavailable for every sale in your project. The contract clause at acquisition — margin scheme applied or not, GST-inclusive or plus GST — quietly moves your feasibility by six figures.
Paperwork that has to exist
Two written agreements, at two moments. The land contract has to be drafted so eligibility survives. Then every sale contract must record the buyer's written agreement to apply the margin scheme, made at or before settlement — the ATO does not accept retrofits. Your buyers generally won't object: purchasers of new residential premises can't claim input tax credits either way.
Put it in the feasibility, explicitly
A feasibility that says "GRV $8.1M" without stating the GST treatment forces the credit analyst to assume the conservative case — and you lose the benefit before anyone has checked whether you qualify. State it: margin scheme applies, acquisition cost, GST per unit, net realisation. It's one more line that makes the file read like someone who has done this before, and it's the cheapest leverage improvement in development finance.