As part of our Property Taxes in Victoria series, we take a look at Goods and Services Tax (GST) in property purchases.
Please note that tax laws, thresholds and tax rates are subject to annual revisions, so check the government website for the latest information.
GST is a federal tax of 10% value added tax payable on supplies of most goods and services. Registered business are responsible for collecting GST and remitting it to the Australian Taxation Office ATO.
GST may also apply to the sale of real estate in some circumstances.
This mainly occurs when the seller is registered (or required to be registered) for GST and the property is sold in the course of an enterprise.
Mostly it is applied to new residential properties (such as newly built homes or subdivided land sold by a developer) and to commercial property transactions.
Sales of established (used) residential properties are generally GST-free which means most ordinary home sales by individuals won't include GST.
It is mostly property developers or businesses that are required to charge GST on sale of new dwellings, new subdivisions, commercial premises, or if selling as part of a business asset sale.
When does GST apply?
If a property sale is a taxable supply, the vendor must include GST in the price. For example, a developer selling a brand-new unit for $550,000 would normally have $50,000 of that being GST to remit to the ATO.
There are some exceptions and concessions:
- going concern sales (eg where a leased commercial property or a business is sold as a going concern);
- farm land sales can be GST-free if conditions are met; and
- the margin scheme can reduce the GST payable on certain property sales (allowing GST on only the value added since acquisition).
These concessions and exemptions require advice and are to be noted in the contract of sale.
Leases of commercial property usually have GST on the rent if the landlord is registered (or required to be registered for GST).
It's crucial for buyers and sellers to clarify GST treatment in the contract of sale to avoid unexpected GST disputes or assessments.
GST Withholding (new residential premises)
To ensure payment of GST the Australian government introduced a GST withholding mechanism in 2018 for sales of new residential property and certain potential residential land.
In these transactions, the purchaser must withhold a portion of the price at settlement and pay it directly to the ATO, instead of the seller or developer receiving the full price and later remitting GST. The amount is usually 1/11th or 7% if the margin scheme is used.
The amount withheld is credited against the seller's GST liability. The seller is required to notify the buyer if withholding applies and the amount, but ultimately the buyer's representative must lodge forms with the ATO before settlement and ensure payment is made. Failing to do so can result in penalties.
A common issue is establishing whether a property sale is subject to GST.
For sellers, charging GST incorrectly (or not at all when required) can be expensive, if you don't include GST in the contract price or in the special conditions and GST is payable, you may have to remit 1/11th of the price out of your pocket (effectively losing that portion).
Conversely, some buyers fail to claim input tax credits when entitled for example a business buying a commercial property with GST.
It's also easy to misinterpret the margin scheme rules, this must be agreed in writing in the contract, otherwise full GST applies.
Buyers of new residential property need to be aware of their GST withholding obligations, if the vendor is a developer or someone selling new residential premises, assume you'll have to withhold and seek the vendor's notice.
Not lodging the required forms or paying the withheld amount on time can lead to ATO penalties. Your conveyancer or conveyancing lawyer will handle this for you.
Another risk area is mixed-use properties (partly residential, partly commercial) or off-the-plan sales – the GST treatment can be complex and may change if the property's use changes (for example, a building initially intended as apartments might be converted to student accommodation). These scenarios require careful advice.
Conveyancer vs. lawyer:
Conveyancers handle standard GST withholding processes routinely as a part of the sale or purchase of a property. They however cannot provide advice on GST and other property taxes.
For a straightforward purchase of a new house from a developer, a conveyancer is typically sufficient to handle the paperwork. If there is any uncertainty about GST, you should involve a lawyer or tax advisor.
For instance, determining whether a sale qualifies as a going concern, or whether land is "potential residential land" subject to withholding, or whether an unusual property (like a hobby farm or a subdivided lot from a larger acreage) is taxable can be complex.
Conveyancers cannot advise on tax law, so a property lawyer or accountant should be consulted to confirm the GST treatment and draft special contract conditions if needed (e.g. margin scheme clause, indemnities for GST errors, etc.).
In a dispute – say a disagreement post-settlement about who bears a GST cost – legal advice will be required from a lawyer.
How to dispute an assessment:
If the ATO assesses that GST was owed on a property transaction and you disagree (perhaps you believe an exemption applied), you can object to the assessment. Such disputes might end up in the Administrative Appeals Tribunal or Federal Court so it is important to get advice from a lawyer early to ensure you provide the relevant documents.
If a GST withholding was wrongly applied (too much withheld), the seller generally gets a credit on their BAS – they can adjust their GST return or seek a refund from the ATO rather than "contest" the buyer's withholding.
However, if an error led to an under-withholding and the ATO imposes penalties on the buyer, the buyer can request the ATO remit the penalty in appropriate circumstances. Given GST is a federal tax, resolution follows ATO objection processes and potentially court proceedings.
GST matters and disputes can be quite complex and can be exacerbated by not getting clear advice early enough. To ensure you get the best outcome seek advice early and get expert representation from an experienced tax lawyer.
If you have a GST dispute speak to one of our taxation lawyers today on 1300 907 335 to help get a resolution.
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.
