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GST and “New” Residential Property

By Aman Bargri

27th April 2018

On 29 March 2018, the Treasury Laws Amendment (2018 Measure No. 1) Bill 2018 received Royal Assent.  The Bill introduced a new GST withholding regime for certain transactions involving residential property.  The ATO has just released further information on the new GST withholding regime.

GST Withholding Regime

Generally, the new withholding obligation will apply to taxable supplies of “new residential premises” or “subdivisions of potential residential land”, where a contract for such a transaction is entered into on or after 1 July 2018.

Purchasers, instead of paying the full contract price to a GST registered supplier (“the seller”) will be required to withhold an amount from the contract price and pay that amount directly to the ATO.

The amount to be withheld and remitted to the ATO is:

  1. for fully taxable supplies – 1/11th of the contract price;
  2. for margin scheme transactions – 7% of the contract price; and
  3. for supplies between associates for a price less than the market value of the property – 10% of the GST exclusive market value.

The following transactions will be excluded from the withholding regime:

  1. sales of commercial properties (e.g. shops) and commercial residential developments (e.g. motels);
  2. new residential premises created by “substantial development”; and
  3. fully taxable supplies of vacant land between GST registered businesses where the purchaser is entitled to a full input tax credit on the purchase.

Transitional relief will also be available for sale contracts entered before 1 July 2018 that settle before 1 July 2020.

Seller’s Obligations

Unlike the foreign residents withholding tax regime, under the GST withholding regime, the seller will be obliged to provide a notice in writing to the purchaser if the purchaser is required to withhold an amount of GST from the contract price.  This notice may be in the contract or a separate document.

Although a failure to provide such a notice does not affect the purchaser’s obligation to withhold an amount, penalties may apply to sellers for failing to provide the required notice.

The notice must, amongst other things, provide the following details:

  1. the seller’s name and A.B.N.;
  2. the amount that must be withheld; and
  3. when the withheld amount is due to be paid to the ATO.
Purchaser’s Obligations

Purchasers will be required to:

  1. lodge a “GST Property Settlement Withholding Notification (Form 1)” online prior to settlement;
  2. complete and lodge a “GST Property Settlement Date Confirmation (Form 2)” on or before settlement using the Payment Reference Number and Lodgement Reference Number it obtains after it lodges the Form 1; and
  3. make the withholding payment to the ATO on or before the date of settlement (or when the first instalment payment is made under an instalment contract).

When a seller lodges its BAS, it will receive a credit for GST that has been withheld and paid to the ATO.  A credit will not be available to a seller if the purchaser has not remitted the required amount to the ATO.  This will be an issue for sellers to consider and manage.

Further Information

If you have any queries regarding the above legislation or require assistance in drafting documents or special conditions in relation to the above matters, please contact Aman Bargri or our commercial and property law team.

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