The new GST ‘withholding” regime for sales of new residential properties and vacant residential lots will apply to contracts from 1 July 2018.
The new measure was introduced to prevent developer companies from selling properties for a price that includes GST and then dissolving their business before they are liable to remit the GST (known as phoenixing).
What this means for Purchasers?
The new legislation will require purchasers to remit the GST element of the purchase price directly to the ATO at settlement.
What this means for Vendors?
Vendors of all residential premises or potential residential land must notify the purchasers whether they:
– Are required to withhold an amount from the purchase price and pay that amount to the ATO.
– Are not required to withhold. (e.g. the supply is not a taxable supply, or an exclusion applies)
– This notification must be in writing (e.g. on the contract) and must be provided at least 14 days before making the supply.
What happens if the Vendor fails to provide a notice?
There are penalties that will apply if the notice is omitted attracting 100 penalty units if the Vendor is an individual. Where a corporation is convicted of the offence, the penalty that the Court may impose is 5 times the maximum penalty that the Court can impose for the offence.
1 penalty unit = $210
What type of properties are involved?
The rule only applies to New Residential Property and Potential Residential Land subdivision.
These are premises that have not previously been sold as residential premises.
Some examples include, a newly constructed house, subdivided parcel of land, buying from a housing development, off the plan apartments.
What is not “new residential premises”: Commercial Property, Commercial residential premises, substantially renovated new residential premises, “old” residential premises, certain business to business potential residential land transactions.
What are the Purchasers Obligations?
The Purchaser is required to withhold the amount from the contract price and pays the balance of the price to the Vendor at settlement.
The withheld amount will be remitted to the ATO on or before the day on which any of the consideration is provided to the Vendor. This is usually the settlement date.
Purchasers will not need to register for GST just because they have a withholding obligation.
Prior the the settlement a GST property settlement withholding notification must be completed and lodged online to the ATO. A conveyancer or legal representative can do this on the Purchasers behalf.
Once settlement has taken place the GST property settlement date confirmation has to be completed with the unique reference numbers provided by the ATO.
A purchaser that fails to pay the withheld amount as required may be liable to pay the Commissioner a penalty which is equal to that amount.
There will be no penalty if the Purchaser was given a notice by the Vendor either stating that premises are not new residential premises, or indicating that they were not required to withhold and pay an amount to the ATO.
What do I need to do?
Any questions regarding GST, we recommend you contact your Accountant for advice.
At Conveyancing Matters, we ensure that all our clients transactions are carried out in accordance with the current legislation. All the members of our professional conveyancing team are briefed on the issues and ramifications arising from them so they can assist you should these changes have an impact on your property transaction.