Seller Beware – New GST Withholding Regime

Changes to the GST payment rules have had significant impacts for property developers and purchasers alike since coming into effect on 1 July 2018.

The changes require purchasers of new residential properties to withhold GST from settlement and pay it directly to the ATO. This is a significant change from the usual position where the vendor receives the GST inclusive price at settlement and later remits the GST component in its BAS.

Which properties?

The regime applies to sales of “new residential premises” and “potential residential land”, for example off-the-plan apartments, vacant residential land (where the land does not include commercial buildings) and house and land packages.

Substantial renovations of residential premises and “commercial residential premises” (e.g. hotels) are not affected.

The amount to be withheld

Purchasers are required to withhold and pay directly to the ATO:

  • 1/11th of the contract price; or
  • (if the margin scheme applies) 7% of the contract price.

Vendor’s obligations

Vendors are required to notify purchasers whether or not the GST withholding obligation applies to the sale. This notice can be given anytime before settlement, but should be given as soon as possible.

Where a GST withholding requirement applies, vendors must further notify purchasers:

  • The supplier’s name and ABN;
  • The amount the purchaser is required to withhold and pay to the ATO; and
  • When the purchaser is required to pay the amount.

Purchaser’s obligations

Purchasers must withhold and pay the relevant amount directly to the ATO.

The timing of the payment will almost always be on the day of settlement, except in circumstances where payments (other than the deposit) are made before settlement.

Important considerations

For vendors:

  • Does your contract of sale contain the required notice provisions?
  • Will the change to your cashflow impact your ability to pay out your loans at settlement? i.e. if purchasers withhold an amount, there is less available for the Bank at settlement.
  • Do you have evidence the Purchaser has discharged its obligation to pay the withheld amount to the ATO?

For purchasers:

  • Are you required to withhold an amount in respect of GST? If so, how much?
  • When do you need to pay the amount?
  • How do you discharge your obligation to pay an amount to the ATO?

It is important your solicitor is familiar with the new GST withholding regime and that contracts of sale address these requirements as there are penalties for purchasers and vendors who fail to comply with the new requirements.

Please contact Peter Bazzani or Brett Taback for specific advice or assistance.

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.