Since 1 July 2018, buyers of new residential premises or potential residential land may now be required to withhold an amount from the purchase price and pay that amount to the Australia Taxation Office (ATO) on or before property settlement.
The conveyancer, solicitor or real estate agent should be able to assist with the property conveyancing process and gathering the information required to make a valid notification to a purchaser.
The property transactions impacted include:
If you are a property developer, you need to let the buyer know if they need to withhold an amount when you sell residential premises or potential residential land. This information can be included in the sale contract or in a separate document.
To provide certainty to purchasers, a supplier (vendor, seller, etc) of residential premises or potential residential land must notify in writing whether a purchaser is required to withhold an amount. If the purchaser is required to withhold, the supplier must also notify the purchaser what that amount is and when it needs to be paid.
The general rule is that if the property sale contract specifies an amount that is the price of the supply (for example, the contract price) then the withholding amount is calculated on the contract price. However, there are some situations where the amount to be withheld must be calculated differently.
|SITUATIONS WHERE THE AMOUNT TO BE WITHHELD MUST BE CALCULATED DIFFERENTLY||AMOUNT TO BE PAID BY THE PURCHASER|
|The margin scheme applies to the supply||7% of the contract price or price|
|The supply is between associates and is without consideration, or is for consideration that is less than the GST inclusive market value of the supply||10% of the GST exclusive market value of the supply|
|There is a mixed supply, for example only partly a supply of new residential premises or potential residential land||A reduced amount using a reasonable apportionment of the contract price or price multiplied by the applicable rate.|
|There are multiple purchasers (not joint tenants)||7% (margin scheme) or 1/11th of the contract price or price for their % interest in the property purchased|
This law change does not affect the supplier’s obligation to lodge their Business Activity Statement (BAS) and report their GST liabilities or entitlements on taxable supplies of these types of properties.
Once the supplier lodges their BAS and it is processed, the supplier will receive a credit of the amount the purchaser withheld and paid to the ATO.
The transfer of the legal title of the property following settlement of a sale is a matter for the parties to the sale contract. The changes 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.
Some property transactions are excluded from the new measure:
Other types of property transactions are not included in the new measure as they are not new residential premises or potential residential land, for example:
The new laws are prospective and only apply on or after 1 July 2018.
That means if your property sale contract was entered into (for example, exchanged) before 1 July 2018 and consideration (other than a deposit) for the sale is made before 1 July 2020, the new notification and withholding rules do not apply.
The normal GST rules will apply for sale contracts for a taxable sale of new residential premises or potential residential land:
Note: The supplier will report and pay the GST on the sale when they lodge their next BAS.
A supplier must not sell any residential premises (new or otherwise) or potential residential land unless the purchaser has been notified in writing whether there is a requirement to withhold.
If the property being sold is excluded from the withholding obligation (for example, because it has been sold previously), the supplier notification must be clear that ‘no withholding is required’.
The supplier notification may be:
The onus is on the supplier to inform the purchaser correctly or penalties may apply.
There is no requirement for the supplier to notify if the supply is of:
If the purchaser must withhold, the supplier must provide additional information in the notification given to the purchaser including:
There are two online notification forms the purchaser or their representative needs to lodge:
Once the confirmation form is submitted a lodgement confirmation will be issued automatically to the purchasers (or representative’s) email address, or can be printed from the screen.
Using the payment reference number (PRN), the purchaser will then pay the withheld amount directly to the ATO. The purchaser will receive an email confirmation once the payment is processed, as proof of payment for their records.
The credit will be transferred to the suppliers GST property credit withholding account. Once the payment has been credited, the supplier will then receive email confirmation.
The supplier lodges their BAS when it is due and reports the taxable sale along with:
When the BAS is lodged the credits in the GST property credit withholding account will be automatically transferred to the suppliers activity statement account. This will apply the withholding credits against the supplier’s BAS net amount.
Any surplus credits from the activity statement account will be refunded (subject to normal GST refund processes) or if a further amount of GST is payable, the supplier will remit that amount if it hasn’t been paid already.
Note: The credit will not be made available until the supplier has lodged their next BAS and it has been processed.
Your conveyancer, solicitor or real estate agent should be able to assist the with property conveyancing process and gathering the information required for you to make a valid notifcation to a purchaser.
If you are purchasing new residential premises or potential residential land (and the exclusions do not apply) you will be required to withhold an amount from the purchase price and pay the amount to the ATO.
Your conveyancer, solicitor or real estate agent should be able to help gather the information you need to:
If you are unsure of the correct GST treatment of the property purchase or supply you are making, it is recommended you seek advice. You can call Damien Palmer, AFS Business Services Partner on 03 5443 0344 or get in touch with the ATO to avoid unintended consequences.