From 1 July 2018, purchasers of new residential premises or potential residential land (eg. new lots in new residential subdivisions) are required to withhold an amount of the contract price and pay this directly to the Australian Taxation Office as part of the settlement process. The amount of GST will not change. The new laws came into effect in order to stop the practice known as ‘phoenixing’ where certain property developers would make a taxable sale on these types of properties and fail to remit the GST collected from purchasers to the ATO.
Essentially, the new obligations require:
1. the Sellers of all residential premises or potential residential land to give written notification to the Buyer whether the Buyer will be required to withhold the required GST amount from the settlement proceeds and to pay this amount to the Australian Taxation Office (“ATO”). The liability for the GST remains with the property developer, and there are no changes to how property developers lodge their business activity statements.
2. the Seller to split the amount of GST from the total purchase price,
3. the Buyers of new residential premises or potential residential land to lodge two separate online forms (the GST Withholding Notification form and the Settlement Advice Notification Form) with the ATO and to ensure that the required GST amount is withheld from the settlement proceeds and paid directly to the ATO by a disbursement at settlement; and
4. the Buyer to pay the GST exclusive price to the property developer (Seller).
Purchasers do not need to register for GST to pay the GST direct to the ATO.
Contracts for the sale of residential premises or potential residential land entered into after 1 July 2018 should include appropriate provisions dealing with these obligations. Specially drafted non-standard contracts (such as “off the plan” contracts for particular development projects) must ensure that they include adequate treatment of the GST withholding obligations of both parties.
There is no requirement for a vendor to provide a GST withholding notice for contracts entered into before 1 July 2018 and the new requirements do not affect the sales of existing residential properties or the sales of new or existing commercial properties.
The amended legislation includes a transitional arrangement that excludes contracts entered into before 1 July 2018 where any consideration for the supply (other than a deposit) is provided before 1 July 2020. This will provide certainty for contracts that have already been signed.
For a Plain English overview of the new provisions you might wish to watch the following short animated video prepared by the ATO.
The contents of this blog, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.