On 1 July 2018, a new regime of GST withholding obligations comes into effect and is set to create considerable change in the industry.
As promised in the 2017- 2018 budget, the Government is introducing new GST withholding legislation for supply of real property, specifically new residential premises, new residential subdivisions and long term leases (a period of 50 years or more). The GST withholding obligations commence on 1 July 2018 and will seriously impact the sector.
What you need to know
- The GST withholding obligations will apply to the supply of all new residential premises (never been lived in) and new residential subdivisions (vacant land) when the consideration stated in a contract of sale is paid by the purchaser. If a purchaser is not registered for GST it must remit prior to or retain at settlement GST on behalf of the vendor.
- The withholding obligation will continue to apply each time vacant residential land is supplied, rather than just the first supply. For example, the sale of vacant residential land by the first purchaser of that land prior to any building being constructed on the land.
- The amount of GST to be withheld is dependent on whether the sale is a plus GST transaction or a sale on the margin scheme. If the property is sold plus GST then the purchaser must remit 1/11th of the contract price to the ATO. If the property is sold applying the margin scheme, the purchaser must remit 7% of the contract price to the ATO.
- If the purchaser of the supply is registered for GST the new legislation will not apply.
The vendor must provide notice to the purchaser whether or not the withholding obligations will apply, setting out details of the entity making the supply, when the purchaser is required to pay the Commissioner and the amount to be remitted.
A vendor, at the time of lodging its BAS statement, must provide the Commissioner with a report setting out the sale of the property and the amount of GST payable on the sale. A vendor may be entitled to a tax credit from the Commissioner for the GST already held and remitted by the purchaser.
The purchaser, being the recipient of the supply, must remit the GST to the Commissioner either prior to or at settlement. Payment of the GST by the purchaser will be dependent on the type of settlement occurring. If the settlement is to occur on PEXA, the GST will be paid directly to the ATO. If the supply does not settle via PEXA, then a purchaser may remit the GST via bank cheque to the ATO prior to or at settlement.
If the vendor fails to provide notice to the purchaser, the purchaser and/or its conveyancer may remit GST to the Commissioner without incurring any penalty.
The general rule in relation to the withholding obligations requires a purchaser to remit GST on the contract price on or after 1 July 2018 regardless of when the contract of sale was signed. The exceptions to the general rule are:
- If the contract of sale was entered into before 1 July 2018 with the consideration for the supply being paid by the purchaser before 1 July 2020, the withholding obligations will not
- If the contract of sale was entered into before 1 July 2018 with the consideration for the supply being provided by the purchaser after 1 July 2020, the withholding obligation will
Madgwicks is currently reviewing all relevant or affected Contracts or Sale and implementing the necessary amendments. As 1 July 2018 is fast approaching, please contact the Madgwicks Property team to discuss your obligations for your existing and future developments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.