From 1 July 2018 a new “GST withholding” regime commences whereby buyers of new residential premises or potential residential land will be required to withhold and remit GST portion of the sale price directly to the ATO.
The new requirement is aimed at property developers who fail to remit GST to the ATO despite claiming input tax credits.
GST withholding applies to taxable supplies sold or provided as a long-term lease:
- New residential premises that have not previously been sold as residential premises (other than commercial residential premises), or have not been subject to long-term lease
- Certain subdivision of potential residential land
Amount for Purchaser to Withhold and Remit
- 1/11th of the contract price (for fully taxable supplies)
- 7% of the contract price (for margin scheme supplies)
- 10% of GST exclusive market value of the supply (for supplies between associates for a price less than GST inclusive market value)
Exclusions and Transitional Relief
Some property transactions are excluded from withholding at settlement including:
- sales of commercial property (for example, factory or shop) and commercial residential developments (for example, hotel or motel)
- new residential premises created by substantial renovations
- fully taxable supplies of vacant land between GST registered businesses where the purchaser is entitled to an input tax credit (GST refund) on the purchase.
There is also transitional relief available for relevant property sale contracts entered into before 1 July 2018 where consideration for the supply is first provided (other than a deposit) before 1 July 2020. In those circumstances the purchaser is not required to withhold an amount from the supplier and no penalties will be imposed on the purchaser for a failure to withhold.
A supplier must provide a notice in writing to the purchaser before selling any residential premises or potential residential land stating whether the purchaser needs to withhold or not. The supplier’s notice may either be in the contract for sale, or in a separate document.
A failure by the supplier to provide the notice doesn’t affect the purchaser’s obligation to withhold an amount if the property is a taxable sale of new residential premises or potential residential land.
Penalties may apply to a supplier for failing to provide the required notification and/or the required details. If the purchaser is required to withhold, the supplier must provide:
- their name and ABN
- the amount that must be withheld
- when it is due to be paid to the ATO.
The purchaser must make a payment to the ATO on or before the day which settlement occurs.
A purchaser (or their conveyancer) needs to lodge Form 1: GST property settlement withholding notification using the details provided by the supplier. This form is lodged online prior to settlement and enables a purchaser to obtain a unique payment reference number (PRN) and lodgement reference number (LRN).
The PRN and LRN are required to enable the purchaser to complete and lodge Form 2: GST property settlement date confirmation on or before settlement and make the withholding payment to the ATO.
Penalties on Supplier for failing to notify
If the supplier fails to notify the purchaser about the GST withholding obligations, the supplier may be charged with a fine that can be imposed by a court of $21,000 for individuals or $105,000 for corporations. Alternatively, the ATO may impose an administrative penalty of $21,000.
Penalties on Purchaser for failing to withhold
Failure by the purchaser to withhold the GST withholding and remit it to the ATO gives rise to an administrative penalty under existing provisions (equal to 100% of the amount to be withheld). The penalty will not apply if the purchaser has relied on a notification from the supplier (provided reliance is reasonable), or if the purchaser has provided the supplier with a bank cheque for the GST withholding that is payable to the ATO.
If you require help or guidance in relation to the changes in GST laws, please get in touch with our office.