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Residential Developments – Purchasers to pay GST to ATO after 1 July 2018

On 29 March 2018 amendments were made to the GST legislation requiring purchasers of new residential premises and potential residential land to withhold 1/11th of the purchase price as GST. The amount withheld is to be paid directly to ATO at settlement. Morgan + English’s conveyancer Jacki Osmand looks at what this means.

Application of the Rules:

  • From 1 July 2018 all contracts of sale entered into will be affected by the change in withholding requirements.
  • Contracts signed prior to 1 July 2018 will not be subject to any withholding requirement provided settlement takes place prior to 1 July 2020.
  • The purchaser will be required to withhold 1/11th of the price and pay that amount to the ATO on or before the day that ANY part of the consideration is paid (other than deposit). (NB if contract is paid in instalments then the full GST amount on the purchase price is to be paid at the first instalment)
  • If a margin scheme applies to the purchase then the amount to be withheld is 7%
  • The Vendor is entitled to claim a credit on the BAS equal to the amount paid by the purchaser.
  • The purchaser must pay directly to the ATO or provide a bank cheque to the vendor made payable to the ATO.
  • The amount to be withheld is on the contract price only. Any settlement adjustments are not included.
  • A vendor is required to give the purchaser written notice before the date of supply. The notice must state, whether the purchaser is required to withhold and make a payment to the ATO, and include the vendor’s legal name and ABN, the amount to be paid and when it must be paid by the purchaser.

Penalties

If a Vendor fails to comply with providing a notice gives rise to a strict liability offence with a maximum liability of 100 units or equal to $21,000 for individuals or $105,000 for companies.

If the purchaser fails to withhold and pay the required amount to ATO they may be liable to a penalty equal to the amount of the withholding obligation.

Conclusion

These amendments effect all new residential property and potential residential land and places the obligation on the purchaser to pay remit the GST to the ATO. There is no obligation on the purchaser to withhold if purchasing existing residential premises.

All vendors will need to ensure that they implement the new notification procedures and purchasers are likely to request warranties from vendors as to the GST status of the property.

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