Who Is Responsible To Pay GST On New Residential Property After 1 July?
Effective 1 July 2018, if you plan on purchasing new residential property or potential residential land, you (the purchaser) will be required to withhold GST on settlement and pay this amount directly to the Australian Taxation Office (ATO). Prior to this, it was the seller’s responsibility.
This measure also applies to long-term lease.
How does it affect the seller/vendor?
Losing the benefits of utilising the GST amount from time of settlement to when the business activity statement (BAS) for the corresponding period is due for lodgement and payment.
For example, under the old rule, if the seller settles a new residential property on 1 July, assuming the seller lodges quarterly BAS, GST is only due payable to the ATO on 28 October. This means the seller gets to keep the GST amount to fund their business operation or other development projects effectively interest-free for four months.
Due to the changes, GST is paid directly to the ATO by the purchaser on settlement of the property. As a result, the seller only receives the balance of sale price minus GST on the date of settlement.
This does not relieve the seller from having to lodge a BAS to report the sale of property.
How does it affect the buyer/purchaser?
This does not alter the price of the property you are purchasing. You are simply required to pay the GST amount to the ATO and balance to the seller, as opposed to making one payment to the seller under the old rule.
How does it work?
The seller is required to give the buyer(s) 14 days written notice if GST is applicable to the transaction and to be withheld. This can be done as a separate notice or incorporated in the sale contract; and should include ABN details of the seller, amount of GST to withhold and the payment due date. Failure to issue a notice will result in penalties or the buyer(s) withholding excessive amounts.
GST amount to be withheld is generally either:
- 1/11th of the contract price;
- 7% of the contract price if Margin scheme applies; or
- 10% of GST exclusive market value of the supply if not at arm’s length.
The purchaser will need to complete two online forms:
- Form one – “GST Property settlement withholding notification”: to be completed and lodged at any time after the contract has been entered into and up to the settlement date.
- Form two – “GST Property settlement date confirmation”: to be completed and lodged on settlement or as soon as possible.
Payment of GST withheld is to be made to the ATO after lodgement of form two. The ATO will notify the seller once the buyer has made payment and the credit (GST withheld) will be transferred to the seller’s property credit withholding account
At the end of the GST reporting period, the seller is required to complete a BAS as normal to report their GST liability. Once this has been lodged, credit for the GST withheld amount will be received by the seller to offset against their GST liability.
This new rule does not apply to commercial or commercial residential premises; and new residential property created by substantial renovations. It also excludes contracts signed before 1 July 2018 as long as it settles before 1 July 2020.
Please contact Nick Lam from the PKF Adelaide office for any assistance or further clarification on this matter.