GST withholding for certain taxable supplies of property from 1 July 2018
There have been law changes to improve the integrity of GST on certain property transactions starting on 1 July 2018.
The property transactions affected are taxable supplies of new residential premises or subdivisions of potential residential land. Contracts for these transactions entered into on or after 1 July 2018 are impacted by the changes.
Instead of paying the full contract price to the GST registered supplier (vendor) at settlement, a purchaser is now required to withhold an amount from the contract price and pay that amount directly to the ATO.
The amount a purchaser must withhold and remit to the ATO is:
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)
This law change does not affect the supplier's obligation to lodge their Business Activity Statement (BAS) and report their GST liabilities/entitlements on taxable supplies of these types of properties.
It should be noted that the transfer of the legal title of the property is a matter for the parties to the sale contract. The changes outlined above do not require the withholding amount to be paid to the ATO before a title transfer can be registered with the relevant state or territory agency.
Purchasers do not need to register for GST just because they have a withholding requirement.
Exclusions and transitional relief
Some property transactions are excluded from withholding at settlement including:
sales of commercial (eg factory, shop) and commercial residential developments (eg hotel, motel)
new residential premises created by substantial renovations
fully taxable supplies of vacant land between GST registered businesses where the purchaser is entitled to a full 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 that settle 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 if the purchaser is required to withhold an amount from the contract price and pay it to the ATO. 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 a subdivision of 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) need to lodge a GST property settlement withholding notification (Form 1) 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 the GST property settlement date confirmation (Form 2) on or before settlement and make the withholding payment to the ATO.