GST Payment Obligations When Purchasing New Residential Property
On 1 July 2018 new GST laws will commence which require purchasers of various categories of new residential property to remit GST direct to the Australian Tax Office (ATO) on behalf of the Vendor. It is important to note that the Bill that will introduce these changes has, at the time of writing, not yet been finalised so some small amendments may still occur.
When GST is applicable on the sale of residential property, Vendors are required to remit the GST they collect to the ATO in their next Business Activity Statement (BAS). As BAS statements are required to be lodged quarterly, in some cases it can be up to three months before the GST collected is required to be remitted to the ATO.
The effect of these changes is that the purchaser of:
- “new residential property” – being residential property that has not been previously sold as residential property, property that has been created through substantial renovations, or property that has been built to replace demolished premises on the same land; or
- “potential residential land included in a property subdivision plan” – being subdivisions of land that could be used for residential purposes but currently is not
will now be required to pay the GST portion of the purchase price directly to the ATO. Purchasers will be required to pay the GST to the ATO on or before the day that the consideration is provided to the Vendor (however payment of a deposit will not require the payment of the GST notwithstanding that it is a part of the consideration). Vendors will be required to notify each purchaser in writing of their obligation to pay the GST direct to the ATO. Penalties will apply to any vendors who fail to provide satisfactory notice to purchasers of their obligations.
A notification to the purchaser of their obligations must meet the requirements of the ATO. Clelands Lawyers can assist you with the preparation of a notification that satisfies the requirements of the ATO.
Where multiple parties acquire an interest in the property (e.g. two people as tenants in common) they will be required to pay the GST to the ATO in proportion to the interest they are acquiring.
The purchaser will be required to withhold one eleventh of the total purchase price although if the margin scheme is used then the purchaser will be required to withhold 7% of the purchase price.
Failure by the purchaser to pay the GST portion to the ATO will result in penalties being applied to the purchaser. Where a purchaser fails to pay the GST portion to the ATO due to their reliance on an incorrect notification from the Vendor the penalty will not be applied.
Although the new laws come into effect on 1 July 2018, contracts entered into prior to 30 June 2018 where consideration is to be paid before 30 June 2020 will not require the purchaser to withhold GST and therefore, the vendor will not be required to notify the purchaser of their obligations to withhold GST.
It is important that the new GST obligations for both vendors and purchasers regarding new residential property are met to prevent penalties being incurred. Clelands Lawyers can assist you in the adjustment to these new changes going forward.
28 February 2018