Changes to GST Withholding – What You Need to Know

Changes to GST Withholding from 1 July 2018: What you need to know

Announced in the 2017 Federal Budget and coming into effect on 1 July, 2018, the GST Withholding Law requires buyers of certain residential premises to withhold a portion of the purchase price from the seller at settlement to be paid as GST to the Australian Tax Office (ATO). This new law is designed to prevent tax avoidance by companies through phoenixing.

The Real Estate Institute of Queensland (REIQ) has released new Contracts to incorporate these changes taking effecting from 1 July, 2018.

Operation

The new withholding obligation applies to any “new residential premises” or “potential residential land”. This includes long term leases and newly built residential premises that have never been sold.

GST withholding will not apply in the following circumstances:

1. where the seller is not registered for GST (and is not required to be registered for GST);
2. any contract entered into before 1 July, 2018;
3. where the buyer is registered for GST;
4. an existing residential premises; or
5. new commercial residential premises (e.g. hotel or motel).

Amount Withheld

Also, if the Withholding law applies to the contract of sale, the amount withheld is:

1. 1/11^th of the Contract price;
2. 7% of the Contract Price (if the margin scheme applies); or
3. 10% of the GST exclusive market value (related party transactions).

Seller’s obligations

The first thing to remember is the Seller is required to give notice to the Buyer as to whether the sale of the property is subject to GST withholding. This notice includes the amount the Buyer is to withhold, and when the buyer must pay the amount withheld. Also, failure to give notice will result in a penalty to the Seller.

Buyer’s obligations

The Buyer must indicate on the Contract of Sale whether they are:

1. registered for GST; and if so
2. if they are acquiring the land for a credible purpose (commercial transactions only).

The relevant amount is to be paid directly to the ATO by the Buyer on or before settlement. Given that Buyers comply in the required time-frame, there is no increased cost on their purchase.