GST Withholding Requirements

From 1 July 2018 purchasers of new residential premises or potential residential land will be required to withhold any GST payable by a vendor from the sale proceeds and remit that amount directly to the ATO on or before settlement.

This only applies to transactions which are taxable supplies, that is supplies (eg: sales) that meet the following criteria as outlined in A New Tax System (Goods and Services Tax) Act 1999 (“the GST Act”):

1. The supply by the vendor is for consideration;
2. The supply is make in furtherance of any enterprise that the vendor carries out;
3. The supply is within Australia;
4. The vendor is registered or required to be registered for GST.

The GST Act defines potential residential land as “land that it is permissible to be used for residential purposes but does not contain any buildings that are residential premises”.

Previously, at settlement a vendor would collect all of the available settlement funds and pay the GST on the sale at a later date when lodging their BAS.  Now however, for any contracts entered into from 1 July 2018 which are of a taxable supply and are for either new residential premises or potential residential land, the purchaser is required to pay the GST amount directly to the ATO and pay the vendor the balance of the settlement funds thereafter.

Timing

The requirement for a purchaser to withhold GST at settlement will relate to contracts that are entered into on or after 1 July 2018.  This will not be a requirement for contracts that were entered into before this date as long as settlement takes place before 30 June 2020.

Vendor’s Obligations

From 1 July 2018, when selling any residential premises (not just ‘new’ residential premises) or potential residential land, a vendor must notify a purchaser whether or not they are required to withhold an amount for GST at settlement and remit that amount to the ATO (“Notice”).

The Notice required from a vendor must be in writing and contain the following information:

• Name and ABN of the vendor;
• Amount the purchaser is required to withhold;
• When the purchaser is required to pay the GST;
• If the transaction is a non-monetary transaction or the consideration is less than the market value, then the GST exclusive market value is required;
• Any other details required by the Regulations.

Purchaser’s Obligations

A purchaser will be required to do the following if it receives a Notice:

1. Lodge a GST Form 1 with the ATO which outlines the expected settlement date, property details and GST withholding amount. Upon lodgement the purchaser will be provided with a Payment Reference Number (PRN) and a Lodgement Reference Number (LRN).
2. On settlement, a purchaser is required to withhold the GST amount and use the PRN to pay the GST to the ATO together with a GST Form 2 which contains the details of the actual settlement date and makes the payment.

Instalment Contracts

A purchaser is required to withhold the GST amount in relation to an instalment contract upon payment of the first instalment (which does not include the payment of the deposit).

Penalties

Vendor:

If a vendor fails to provide the required Notice to a purchaser, they can face a strict liability penalty of 100 penalty units and an administrative penalty of 100 penalty units.

It is important to note however that a vendor’s failure to provide Notice does not eliminate the purchaser’s obligation to withhold.

Purchaser:

If a purchaser fails to withhold the amount of GST at settlement, they could face an administrative penalty equal to the amount of the withholding.

However, if a purchaser relies on information in the vendor’s Notice and has no reason to question its accuracy, then a penalty will not be imposed in those circumstances.  Additionally, for a paper settlement, if a purchaser agrees to the vendor collecting the cheque for the amount of the withholding at settlement for remitting to the ATO, but they fail to do so, the purchaser is not likely to be penalised.

For more information about these changes and for general property or conveyancing advice please contact Anna Doughan, Property and Commercial Lawyer at Robertson Hyetts, on 03 5434 6666.