New GST Withholding Regime, Purchasers Withholding Obligations Information

by | Sep 25, 2018 | Property

From 1 July 2018 purchasers of certain new residential premises and potential residential land will be required to withhold the Goods and Services Tax (GST) and pay it to the Australian Taxation Office (ATO).

Are you affected?

The withholding obligations apply to a supply by way of sale or long term lease where contracts are:

  • Entered into on or after 1 July 2018; or
  • Before 1 July 2018 where payment (not including deposit) is received on or after 1 July 2018.

In addition to the above, the supply must be for:

  • New residential premises which are not created through substantial renovations, or a commercial residential premises (e.g. motel); or
  • Potential residential land that is included in a property subdivision plan at the time of supply, where:
    • The land does not contain building used for commercial purposes;
    • The recipient is not registered for GST and does not acquire the land for a creditable purpose

For the purposes of the withholding obligations potential residential land is defined as land that can be used for a residential purpose but does not contain any buildings that are residential premises such as vacant subdivided lots in a residential development.

For the purposes of the withholding obligations property subdivision plan is defined as a plan for the subdivision of real property that is registered under Australian law.

Your obligations as a Vendor

As the vendor of a residential premises or potential residential premises upon a Contract of Sale being entered into you will be required to give the purchaser notice of withholding. The notice will need to contain:

  • Your ABN;
  • The amount to be withheld;
  • When the withholding amount will be payable (at settlement or prior if the agreement provides for a partial pre-settlement payment – excluding deposits); and
  • The GST-inclusive market value of any non-monetary value provided by the purchaser (if applicable)

Please note there is no minimum time to give notice. However, in order to avoid delays and unnecessary costs we recommend giving the purchaser notice at the earliest opportunity.

Your obligations as a Purchaser

The vendor of a residential premises or potential residential premises is required to give you notice. The notice will need to contain:

  • The Vendor/Suppliers ABN;
  • The amount to be withheld;
  • When the withholding amount will be payable; and
  • The GST-inclusive market value of any non-monetary value provided by the purchaser (if applicable)

After receiving the notice you are required to inform the Commissioner of Taxation/ATO of the amount to be withheld (on or before the day of payment). Following notice there will be two ATO forms that need to be completed; the forms will enable you to obtain details of the payment reference number and the lodgement reference number in relation to any withheld amounts.

Please note a failure by the vendor to give you notice or, correct notice will not absolve you of your obligation to withhold and pay the Commissioner the correct GST. Failure to withhold or provide a bank cheque payable to the Commissioner may result in an administrative penalty being imposed. The administrative penalty will equate to the amount which should have been withheld plus any applicable general interest charge.

How much will be withheld?

The amount to be withheld will be dependent on a variety of factors. However, as a general guide the percentage to be withheld is:

  • 7% to a maximum of 9% in instances where a margin scheme applies to the transaction;
  • 10% of the GST exclusive market value in circumstances where the Purchaser is and associate and there is no consideration or a consideration less than the GST exclusive market value is paid; and
  • 1/11th of the contract price where the sale is a fully taxable supply.

GST Liability

The purchaser is not required to be registered for GST to withhold any amounts. Please note the purchasers withholding of GST does not absolve a vendor of their business activity statement reporting obligations.

How will funds paid to the Commissioner

The funds will be paid to the Commissioner either at settlement or, before settlement (if the contract provides for any partial payments following payment of deposit).

Generally the purchaser will either:

  • Withhold the required GST amount and pay it to the Commissioner directly; or
  • Provide your representative with bank cheque payable to the Commissioner for the withheld amount.

How will the withheld amount be treated by the Commissioner?

The adjustment of a vendors GST liability will be calculated in the first Business Activity Statement after settlement has occurred meaning the vendor will receive a credit which reflects the amount withheld by the purchaser and, that credit will be set off against any actual GST liability the vendor may have from the transaction.

If there is a discrepancy between the amount held and the actual GST liability of the vendor, the discrepancy amount will either be realised as a refund to the vendor (where the GST liability is less than the withheld amount) or, will be an additional payment owed by the vendor for the relevant reporting period (where the GST liability is higher than the withheld amount)

Please note the above is intended to be commentary and general information only. Commentary and general information should not be relied upon or substituted as legal advice. Formal legal advice should always be obtained. If you would like to get legal advice on your specific situation then please contact our office.

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