On or after 1 July 2018, certain purchasers of new residential premises or potential residential land will be required to withhold an amount from the price of the supply for payment to us.
Note: When we refer to purchasers we are also referring to lessees under long-term leases.
The withholding amount is due on or before the day that consideration for the supply (other than a deposit) is first provided. If the contract is an instalment contract that will be the day the first instalment is paid otherwise it will be the day of settlement.
Suppliers will be required to assist their purchasers to comply by notifying them whether or not they have a withholding obligation on supplies of certain kinds of residential premises and potential residential land. Where there is a withholding obligation, the supplier must notify the purchaser of the amount they must withhold, when they must pay it to us, and of certain other particulars.
The amount a purchaser must withhold and pay to us is generally either:
1/11th of the contract price (for fully taxable supplies)
7% of the contract price (for margin scheme supplies), or
10% of GST exclusive market value of the supply (for supplies between associates for consideration less than GST inclusive market value).
Purchasers do not need to register for GST just because they have a withholding requirement.
Transitional arrangements apply to contracts entered into before 1 July 2018.
Find out about:
Transitional arrangements for property contracts entered into before 1 July 2018
How the measure will work from 1 July 2018
When the contract doesn’t settle
No additional payment on top of the agreed purchase price
Information for suppliers and their representatives
Information for purchasers and their representatives
Video: GST withholding for certain taxable sales of property (External Link)
ATO podcast – Tax inVoice – Episode 4 – GST at settlement
GST at settlement webinar (External Link)
Authorised by the Australian Government, Canberra
The GST withholding obligation was announced in the May 2017 Federal Budget.
It is directed at non-compliance by property suppliers who sell properties for a price that includes the GST but who avoid remitting the GST by dissolving their businesses before their next BAS lodgment. This is a form of phoenixing.
The ATO have requested we not film our AICWA session today, however, they have confirmed that their scheduled webinar, filmed elsewhere, will still occur and will be made available for viewing in the coming days along with a podcast and literature on the new measure/remittance.
AICWA members who attended yesterday’s sessions will be acutely aware that the ATO are placing considerable responsibility on the purchaser’s conveyancer to ensure the supplier (developer’s) statement is correct. The responsibility is noted under draft Rule 58 of “The Purchaser’s obligation to pay an amount for GST on taxable supplies of certain real property” states:
58. It would be unreasonable for a purchaser to believe the correctness of a notice indicating they do not have to make a payment under section 14-250 if it is clear that the vendor is making a taxable supply of new residential premises. For example, if a purchaser enters into an ‘off-the-plan’ contract for newly constructed premises from a developer who is registered for GST, and there is a statement in the contract that the purchaser does not have to make a payment under section 14-250 because the premises are not new residential premises.
How does this affect me?
The Rule leaves the door ajar for potential claims of negligence (penalties) against the purchaser’s conveyancer if they do not question the supplier’s statement and where it could be proven/asserted they had knowledge or reason to believe GST remittance was applicable.
Why are the ATO doing this?
It can be assumed that if Rule 58 was not in place and statement made by the supplier can be categorically relied upon by the purchaser, it would encourage/allow suppliers to issue false or incorrect statements. This would defeat the purpose of the measure in creating a regime to stop tax avoidance by some suppliers.
What has AICWA/AIC been doing to represent us?
AIC National via its representation on the ECG is working with various key stakeholders to raise awareness of the following concerning issues:
- There appears to be no provision to protect the rights of the secured creditor.
- May significantly disrupt the market, in particular for first home buyers.
- Impost on the consumer.
- Potential to increase the cost of new housing and vacant land.
- Impost on small business.
- Impost on developer projects.
- Impact on developer lending.
- Poor consultation process with the limited circulation of information and embargoed meetings.
- Will affect the practitioner’s day to day process and increase the time allocation for a conveyancing transaction.
- The cheque payment process is flawed if handed over to a developer at settlement for payment to the Commissioner.
- Purchaser not in the clear if accepts the detail in the notification from the developer if they knew otherwise.
Where to from here?
Some brief points of note:
- AIC National via its participation with Electronic Conveyancing Group (ECG) are continuing to provide feedback to Treasury and the ATO
- AIC National is developing a training module to assist members with understanding their responsibilities as well as implementing best practice for complying with the measure
- AICWA will make every effort to ensure training and information opportunities to all our members in the lead up to July 1st. Regionals included!
What resources are available to me?
- The Draft Law Companion Ruling LCR 2018/D1 (published on 26 April), – as noted in an earlier News Alert feedback on the draft is due 25 May 2018
- A video has been published on YouTube: GST withholding for certain taxable sales of propertyand also on atotv: GST withholding for certain taxable sales of property
- The GST at Settlement guide has been published at: https://www.ato.gov.au/business/gst/in-detail/your-industry/property/gst-at-settlement/
- The GST and property page and the GST and the margin scheme page on the ATO website has been updated to incorporate the changes for the measure
- AICNSW have published a Business Bulletins article: Changes to GST payments at settlement
- The ATO has published an article on the Small Business Newsroom: Changes to GST on property transactions and lastly: