The new GST withholding laws will come into effect as of 1 July 2018. They will impact on property purchases and sales and therefore it is important that you are aware of these changes.
When Will it Apply?
GST will be withheld when the contract is for:
- The supply of all new residential premises that have never been lived in
- New subdivisions of residential land (that is vacant land)
- Long term leases of a period of 50 years or more.
It is important to note that if a Purchaser is not registered for GST it must remit prior to or withhold at settlement the GST that would be payable by the Vendor. Each Purchaser will continue to retain the GST on each property sold and not just the first property sold. For example, the GST will be withheld from the sale of the vacant residential land which is first sold and prior to any building being constructed on that land.
How Will the GST be Calculated?
The amount of the GST that will be retained by the Purchaser will vary depending on whether the sale is:
- The sale is a plus GST transaction; or
- A sale under the margin scheme.
If the property is sold excluding GST then the Purchaser must retain 1/11th of the Contract price and remit it to the ATO.
If the property is sold using the margin scheme, then the Purchaser must retain a fixed amount of 7% of the Purchase Price and remit it to the ATO.
It is important to note that if the Purchaser of the property is registered for GST then these new laws will not apply and the Purchaser will not need to retain or remit any GST.
What Are the Vendor’s Obligations?
The Vendor must notify the Purchaser if these withholding obligations will apply. This notice must set out the details of the Vendor which is the entity selling the property and also indicate the amount to be retained on settlement and also when the Purchaser is to remit this amount to the ATO.
Further, the Vendor once it lodges it BAS Statement, must provide to the ATO a report setting out the properties that were sold and the amount of GST that was withheld on the sale. It may be a situation that the Vendor will be entitled to a tax credit from the ATO if the GST withheld and remitted by Purchasers is greater than the GST obligation of the Vendor.
The new 2018 Standard Edition Contract will make provision for the notices by the Vendor to be provided at the time of exchange of the Contract.
What Are the Obligations of the Purchaser?
The Purchaser will need to withhold and remit the GST to the ATO either prior to or at settlement. In reality, it will be remitted by way of a direction to draw that amount to the ATO from the proceeds of sale.
Given that we are moving to electronic conveyancing, in practical terms the GST will be paid directly to the ATO on settlement.
In the short term (that is after 1 July 2018 and prior to 1 July 2019) the Purchaser will be required to withhold and remit the GST via a bank cheque drawn on settlement.
When Will the New Laws Apply?
The general rule for withholding the GST will require a Purchaser to do so and to remit the GST on the Contract price on or after 1 July regardless of when the Contract was signed.
However, a number of exceptions have been drafted into this general rule which is:-
- If the Contract was entered into before 1 July 2018 and the Contract is to settle (that is the Purchase price will be paid) before 1 July 2020, then the new laws will not apply.
- If the Contract is entered into before 1 July 2018 but the Contract will not settle until after 1 July 2020, then the withholding obligations will apply notwithstanding the date the Contract was entered into.