New GST Withholding Laws in Australia
On 1 July 2018 the new GST withholding regime relating to new residential premises or potential residential land transactions came into effect. The regime requires the buyers of new residential premises or potential residential land to account to the Australian Taxation Office (ATO) for GST included in the purchase price.
The GST withholding regime will affect any property contracts for new residential premises or potential residential land purchases entered into from 1 July 2018 or entered into prior to this date but settling after 1 July 2020.
New residential premises are defined as premises that have not previously been sold as residential premises. It may also include a property that has been built to replace a demolished property on the same land. Potential residential land is defined as land that is permissible to use for residential purposes but does not contain any buildings that are residential premises and has not been previously sold as potential residential land. However, the definition is wide enough that it may include vacant rural property which may be used for residential purposes. Some examples of properties that fall within the definitions of new residential premises and potential residential land are:
- new apartments;
- new subdivided land lots; and
- house and land packages sold under a single contract.
In accordance with the new laws the Real Estate Institute of Queensland and the Queensland Law Society have released an updated version of the standard residential house and land contract. The new contract includes a question for the buyer to answer regarding whether they are registered for GST and acquiring the land for a “creditable purpose”. A creditable purpose is the carrying on of an enterprise for example a business purchasing the land for the purpose of building a house on it and selling. The second amendment to the new contract is for the seller to provide notice to the buyer about whether a GST withholding payment is to be made by the buyer.
The amount of GST to be withheld by the buyer will depend upon the contract. Although, usually the buyer must withhold 1/11th of the purchase price at settlement. However, if the margin scheme has been adopted, the buyer must withhold 7% of the purchase price at settlement even if the actual GST payable by the seller pursuant to the margin scheme is greater or less than 7%.
If the seller does not provide a GST withholding notice or the required information to the buyer then a maximum penalty of $21,000 for an individual or $105,000 for a corporation may be imposed. Should the buyer fail to withhold the required GST amount at settlement then the buyer may be liable to pay the amount that should have been withheld. The buyer may even be liable if the seller failed to provide the notice but the buyer should reasonably have known that GST was to be withheld.
The buyers (or their solicitor) of property where the withholding regime applies will be required to complete and lodge two (2) forms with the ATO. The first form will outline the property and buyers’ details. The second form will confirm with the ATO when payment is made and will create a credit for the seller against their GST liability.
It is evident that the new withholding regime will add extra administrative procedures into transactions relating to new residential premises or potential residential land. The ATO has identified that the reason for these amendments is due to lost revenue from developers winding up their development company without remitting GST they receive from the sale of lots in their development.
If you have any questions about how the changes will apply to you and you would like to discuss your requirements in relation to the new GST withholding regime, please contact our office on (07) 3876 5111 for a consultation.
Kayleigh Whittaker, Senior Lawyer
NB Lawyers – Lawyers for Employers
(07) 3876 5111
About the author
Kayleigh Whittaker is a senior lawyer on our Commercial and Property team who assists with Employment Law matters. With a high level of experience in commercial and retail leasing, voluntary and involuntary purchase and sale acquisitions property development and employee relations, Kayleigh provides practical advice to ensure smooth business transactions.