Australia: New GST withholding on residential property

Last Wednesday 7 February 2018, the Commonwealth Government introduced the Treasury Laws Amendment (2018 Measures No. 1) Bill 2018, which contains new GST provisions that will apply to purchasers of new residential property and potential residential property (Schedule 5).

The proposed changes will impact vendors and purchasers by requiring purchasers to remit to the Commissioner an amount on account of GST and entitling the purchaser to deduct this amount from the settlement monies. Vendors will be entitled to a credit for this amount but will need terms as to how the GST will be paid, so that they can be certain they will be entitled to the credit at time of settlement.

What are the changes to be introduced?

The new provisions will amend the collection provisions in Chapter 2 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (the Act) to impose a payment obligation on purchasers of new residential premises and potential residential land who are not registered for GST or do not acquire the property for a creditable purpose. The purchaser will be liable to pay an amount to the Commissioner under the new s 14-250 of Schedule 1 of the Act.

The supplier still remains liable for GST under A New Tax System (Goods and Services tax) Act 1999 (Cth).

Payment to the Commissioner is required on or before the day on which any consideration, other than the deposit, is provided.

The amount payable where the margin scheme applies is 7% and one-eleventh of the contract price where the margin scheme does not apply.

All sellers and long-term lessors of residential property have a notification obligation under s 14-255 of the Act. The exceptions are supplies of commercial residential premises and potential residential land to an entity that is registered for GST and is for a creditable purpose.

The seller is required to notify the purchaser of whether or not it will be required to make payment under s 14-250. Where the purchaser will be required to make payment, the seller is required to provide their tax details, the amount the purchaser is required to pay to the Commissioner and when the purchaser must pay by.

The supplier is entitled to a credit under s 18-60 at the time of the assessment of its GST amount for the tax period in which the payment to the Commissioner is made.

The purchaser is relieved of the obligation to remit to the Commissioner under s 16-30, where the purchaser provides the supplier with a bank cheque in favour of the Commissioner for the GST amount on or before the date consideration for the supply, other than a deposit, is first provided.

Under the transitional provisions, the new requirements apply to all supplies where any consideration, other than a deposit, is provided on or after 1 July 2018 (regardless of when the contract was entered into). The exception to this is if the contract was entered into before 1 July 2018—in this case, the provisions don't apply to supplies where consideration for the supply, other than a deposit, is provided before 1 July 2020.

Purchasers under existing contracts that do not settle before 1 July 2020 are liable to pay the GST amount to the Commissioner. They will need to rely on the statutory discharge rights in s 16-20 to deduct the GST amount from the settlement monies.

How does this legislation impact you?

This amendment will likely see purchasers request warranties from vendors as to the GST status of the property as well as the right to deduct the GST amount from the settlement monies. Vendors will look to secure payment of the GST amount by bank cheque or using a system that enables the vendor to verify that payment has been made to the ATO.

All vendors will need to implement the new notification procedures established under the legislation. Where an amount is payable to the Commissioner, vendors will need to modify their settlement procedures and ensure they have suitable contractual terms to impose requirements to ensure they will obtain credit at the time of settlement for the new GST payment obligation imposed on purchasers.

Financial institutions lending to vendors of new residential property will need to adjust their modelling to allow for the deduction of the GST amount from settlement monies.

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.

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