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GST Withholding on Residential Premises

GST Withholding on Residential Premises

Nick Kallinikios and Sam Mohammad discuss new GST withholding measures introduced by Government that may apply from 1 July 2018.


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Row of houses on residential street.

On 7 February 2018, the Government introduced Treasury Laws Amendment (2018 Measures No. 1) Bill containing measures that will require purchasers of new residential premises and potential residential land to withhold up to 1/11th of the contract price (GST withholding) and pay it to the Australian Taxation Office (ATO). The measures also extend goods and services tax (GST) withholding to long term leases.

The measures have been the subject of public consultation.

If passed into law the measures are intended to apply to contracts entered into on or after 1 July 2018. Contracts entered into before 1 July 2018 which settle before 1 July 2020 will be exempted from the GST withholding. Also exempted from GST withholding measures are business to business (B2B) supplies, supplies of commercial residential premises and supplies of new residential premises created through substantial renovations.

The standard rate of GST withholding is 1/11th. For sales subject to the margin scheme the withholding amount reduces to 7 percent of the contract price. Settlement adjustments will be ignored for this purpose. Any true-up of the amount paid by the purchaser and the amount correctly payable will be made in the vendor’s Business Activity Statement (BAS) following settlement.

Vendors will be obliged to give notice to purchasers advising whether the sale is subject to GST withholding and the rate. Failure by a vendor to meet the notification requirements is a strict liability offence attracting penalties of up to $105,000 for a corporation or $21,000 for individuals.

Purchasers will be able to rely on such notice, except where it would not be reasonable to do so. Further in the absence of notice purchasers may elect to withhold, thus discharging their liability.

Payment of the withholding amount by purchasers needs to be made to the ATO and can be done either directly or by providing a cheque drawn payable to the Commissioner of Taxation at the time of settlement. Where payment is made directly to the ATO the plan is for Property Exchange Australia (PEXA) system to allow vendors to access on line the evidence of that payment.

There are specific transitional rules that apply to “property development agreements” aimed at preventing windfall gains resulting from these measures. However, these transitional rules are complex are require detailed analysis to determine if they apply to a particular scenario.

Given the short timeframes, clients need to be prepared to update their processes and templates in order to account for the new withholding measures.

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