Skip to main content

Under the Goods and Services Tax (GST), the margin scheme agreement is an option that small businesses can choose to apply when selling second-hand goods. This agreement can help businesses avoid the burden of GST on the full sale price of the goods and reduce their tax liability.

The margin scheme agreement applies only to second-hand goods sold by a registered GST business that were purchased without GST included in the price. In this case, the GST payable on the sale is calculated as a percentage of the margin, which is the difference between the sale price and the original purchase price.

To be eligible for the margin scheme, the item being sold must meet certain criteria. The item must have been acquired for personal use, or for the purpose of resale, and must not have been used for any business purposes before the sale. Additionally, the sale must be made directly to an end consumer, and not to another registered business.

Once a business has determined that they are eligible for the margin scheme, they must keep records of their sales and purchases in order to calculate the GST owed. This information should include the date of the purchase, the purchase price, and the details of the sale, including the sale price and any GST collected.

It is important to note that businesses participating in the margin scheme cannot claim GST credits on their purchases, as they have not paid GST on the items they are reselling. Additionally, businesses who apply the margin scheme must display a special notification on their invoices, which states that the GST payable is calculated on a margin basis and that the price includes GST.

While the margin scheme can be a useful option for small businesses selling second-hand goods, it is important to seek professional advice to ensure that it is the most appropriate choice for your specific circumstances. By carefully considering all of the factors involved, businesses can make the most of this GST option and ensure their compliance with tax laws.