Margin scheme for property development

[Rockstar]

Hi Folks,

I am considering selling one of a duplex pair I am just about to construct. Land was purchased a few months ago for 240k. Development costs are expected to be around 300k to build the two detached dwellings and strata title them. The land was not a taxable supply.

From Here

Example 3: section 75-14

56. Bob is a builder. He purchases a block of vacant land for $180,000 and then constructs a house on the land. The cost of constructing the house is $100,000. Bob sells the house and land package for $400,000.

57. The margin for the supply is $220,000 ($400,000 - $180,000). The cost of constructing the house is not part of the consideration for the acquisition of the land. Instead, Bob is entitled to input tax credits for any construction acquisitions (for example, building materials and subcontractors' services) that are creditable acquisitions .

SO it looks like the margin is the difference between the original purchase and the final sale - not the difference between the original purchase + development costs and the final sale price. So I am wondering how the input tax credits are claimed? If in the above example Bob paid, say, 10k in gst for purchasing materials and services to construct the house would the calculation be as follows?

Margin = 220k
gst on margin = 22k
gst paid on goods and services for development = 10k

final gst payable = 22k - 10k = 12k

Also, I am wondering how buying the house under the margin scheme affects the purchaser if they want to sell the property in the future?

Thanks, RS

 

[Ausprop]

yes you'll claim back 1/11th of your $150k. Margin scheme won't make any diff to your buyer

 

[Rockstar]

yes you'll claim back 1/11th of your $150k. Margin scheme won't make any diff to your buyer

Thanks Aus, not sure where you got the 150k from?

And as far as the income tax calculation for me as an owner/developer - would it be?:

Land cost - 180k
Construction Costs & sales commision - 100k
Sales (net) - 400k
Margin = 220k
gst on margin = 22k
gst paid on goods and services = 9k

final gst payable = 22k - 9k = 11k

Income (gross) = 120k (400-280k)

Income (net) = 120k - 11k(gst) - non gst costs (purchase costs, SD, interest, etc)

Is this accurate?