New GST withholding rules for property transactions
How it will work?
The new GST withholding rules will apply to any taxable supply of “new residential premises” or “potential residential land”.New residential premises – are brand new residential premises. These do not include houses created through substantial renovation or commercial residential premises.
Potential residential land – is land created by subdivision but does not include a subdivision that contains any buildings used for commercial purposes.
When the new ruling will take affect?
The rules will apply to any contracts dated 1 July 2018 and onwards.
If a contract was entered into before 1 July 2018 then the new rules do not apply unless the settlement date is on or after 1 July 2020.
Seller to give notice to buyer about GST?
A seller of residential property will need give the buyer notice as to whether the supply of property is subject to GST withholding.
Failure to provide the necessary notice to the buyer, by the seller may result in significant fines of 100 penalty units (currently $21,000) for an individual and 500 penalty units (currently $105,000) for corporations.
What does the buyer need to do?
Once the buyer has received the notice from the seller that GST Withholding applies, they, the buyers or the buyers representative will need to complete the appropriate forms for the ATO and arrange to withhold the relevant amount at settlement.
The withholding amount can be;
- 1/11th of the contract price (for fully taxable supplies)
- 7% of the contract price (for margin scheme supplies), or
- 10% of GST exclusive market value of the supply (for related party transactions).
Purchasers do not need to register for GST just because they have a withholding requirement.
Payment of the GST?
The buyer is required to pay the GST to the ATO on or before the settlement date.
Failure by the buyer to withhold the GST can see the ATO imposing heavy fines on the buyer.
The obligation on the buyer to withhold an amount and pay it to the ATO isn’t an additional payment on top of the agreed purchase price.
How can ACS help?
We can assist buyers and sellers in complying with their GST withholding requirements. We can also offer assistance to Real Estate Agents in drafting contracts to ensure that their Seller’s comply with the new withholding regime.