Earlier this year the Federal Government passed legislation requiring purchasers of ‘new residential premises’ and ‘potential new land’ to withhold the goods and services tax (GST) on the contract price at settlement and pay it directly to the Australian Tax Office (ATO).
Originally announced as part of last year’s Federal Budget, this reform is designed to improve the integrity of GST on property transactions, and to assist with recovering significant GST missed as a resulting of phoenix activity.
The key requirements are as follows:
- sellers of all ‘residential premises’ and ‘potential new land’ subject to these GST withholding rules will be required to provide purchasers with notification to assist with determining whether the withholding rules apply. The Reference Schedule of all REIQ sale contracts will contain a section for the seller to notify the purchaser whether GST is to be withheld in accordance with these new rules;
- notification is not required when:
- the premises are commercial residential premises; or
- the transaction involves the supply of ‘potential new land’ and the purchaser is both registered for GST and acquiring the land for a creditable purpose;
- notification must include the following information:
- the seller’s name and ABN;
- the amount to be withheld; and
- when the amount is to be withheld;
- purchasers of ‘new residential premises’ or ‘potential residential land’ will be required to withhold at settlement 1/11th of the contract price, or 7% of the contract price if the parties have agreed to a margin scheme, and then pay this directly to the ATO;
- a failure by the seller to provide notification to the purchaser will not affect the purchaser’s obligation to withhold GST under these rules; and
- if these GST withholding rules apply, the seller will receive a credit for GST withheld by the purchaser and paid to the ATO after reporting in its BAS.
Generally, a purchaser will have to withhold GST when:
- the sale or transfer is a ‘taxable supply’ as defined under relevant legislation ;
- the transaction involves the supply of a ‘new residential premises’ subject to GST withholding rules, which may include:
- a ‘residential premises’ that has never been sold or subject to a long-term lease as ‘residential premises’; or
- a ‘residential premises’ built to replace demolished premises on the same land and
- the transaction involves the supply of ‘potential residential land’ subject to GST withholding rules.
Purchasers of ‘new residential premises’ created by substantial renovations are excluded from these GST withholding rules.
GST withholding rules will apply to all agreements entered into on or after 1 July 2018, or to agreements entered into prior to 1 July 2018 but where payment occurs (not deposit) after 1 July 2020.
REIQ Contracts incorporating GST withholding obligations will be released prior to the 1 July 2018 commencement date.
Given the substantial penalties that may apply for failing to provide notice or withhold and pay GST if required, it is strongly recommended that independent legal and/or taxation advice is obtained from a qualified professional about these obligations before entering into a contract.
A detailed training session on this topic will be hosted by REIQ at its Brisbane office on 28 June 2018. Visit REIQ.com for tickets.