Important reminder that on 1 July 2018 new GST withholding obligations came into force which can have the effect of requiring the purchaser of residential premises or land to withhold 10% of the purchase price and pay that directly to the ATO.
- All contracts entered into after 1 July 2018 dealing with the sale of residential premises or potential residential land should now include provisions dealing with the notice and withholding obligations.
- The obligation on the seller to give notice is particularly broad and requires examination at the earliest possible opportunity to avoid penalties.
- A more complex examination of a property transaction will be required where there is a sale of certain mixed-use property with potential residential/rural/commercial-use crossovers.
- When purchasers are required to withhold GST, they must submit two online forms with the ATO.
- If the Seller or the Purchaser does not comply with their obligations, they can receive a substantial fine.
Overview of obligations
The new regime:
- applies to all residential premises or potential residential land sold or leased for 50 years or more; and
- sellers to give written notice to the purchaser stating whether the purchaser is required to withhold GST and if required, the amount to withhold; and
- purchasers to withhold GST and pay it directly to the ATO, if GST is payable on the transaction.
A detailed examination of these obligations, when they are triggered, and the exemptions can be found on the ATO’s website here.
Pound of flesh: How much and when?
If the withholding obligation applies to the transaction, the purchaser must pay 1/11thof the contract price to the ATO, or 7% of the contract price if the margin scheme applies.
The GST withholding amount is due on the day the consideration is first provided, which in most cases will be the settlement date. This date excludes the date of payment of a security deposit, however may be the date of the first instalment under an instalment contract.
Will GST withholding apply to the family home or farm?
Each property transaction must be assessed on its own facts, including whether the premises is deemed ‘new’ under the regime.
Generally there will be a ‘taxable supply’, which may trigger the requirement to withhold GST, if the supplier (seller) is registered for GST and supplies the property in the course of its business.
Therefore individuals selling their private home will, in most cases, not be making a taxable supply, however the sale of vacant land or new residential investment properties may require GST to be withheld.
A taxable supply does not include a GST-free or input taxed supply. Accordingly, the sale of, for example, GST-free farmland, or the sale of a GST-free going concern will not attract a withholding obligation for the purchaser.
It is important to note that even though a transaction does not trigger a GST withholding requirement for the purchaser, in many instances the seller will still be required to give notice regarding the operability of GST withholding.
The penalties for not complying with these new requirements are currently:
- Seller – $21,000 for an individual or $105,000 for a company, per offence; and
- Purchaser – the GST that should have been paid plus the same amount again as a penalty. I.e. if the GST payable was $10,000 then the buyer would have to pay $20,000.
If you would like further information on the new GST withholding regime, please contact our office on 07 4671 4000.