Contributed by Marcus Andrews, Principal , McCabe Curwood
As of 1 July 2018, purchasers are required to withhold the GST component of certain property transactions and remit the amount to the Commissioner on or before settlement. The amendments were implemented to prevent “phoenixing”, whereby property developers collect GST from purchasers and claim tax input credits, but keep the GST by dissolving their company before they are required to transfer the GST to the Commissioner. The scheme includes requirements for vendors to notify purchasers of the GST withholding requirements and for purchasers to comply with this requirement and notify the Commissioner.
Notification Requirements — all residential properties
Under the new scheme, vendors selling a property through a sale or long-term lease (lease for longer than 50 years) for all residential premises or potential residential land are required to inform the purchaser whether the purchaser must withhold the GST component of the sale before settlement occurs. The vendor’s notice must state whether the property is subject to the GST withholding requirement (Notice). If it is, the Notice must also state the name and ABN of the vendor; and the GST amount and when the purchaser must pay the Commissioner. The 2018 Edition of the standard contract for sale includes the Notice (when completed). If the information is not available, the Notice must be provided within 14 days of the contract date.
If the vendor fails to provide the Notice to the purchaser, the vendor is strictly liable to pay a monetary fine. However, the vendor’s failure to notify the purchaser does not relieve the purchaser’s obligation to withhold and remit the GST amount to the Commissioner.
Obligation for purchasers to withhold and remit the GST amount to the Commissioner
Applicable transactions for the withholding requirement
The GST withholding applies to sales and long term leases of:
- “new residential premises”, which include:
- residential premises that have not previously been sold as residential premises, or
- premises that have been built or contain a building that has been built, to replace demolished premises on the same land;
that have not been created through substantial renovations of a building and are not commercial residential premises; and
- “potential residential land”, which includes land that is permissible to use for residential purposes that does not contain any building that is in use for a commercial purpose.
The scheme applies to all of these property transactions that are settled on or after 1 July 2018, irrespective of the amount of the purchase price. It does not apply to contracts entered into before 1 July 2018 that settle before 1 July 2020.
GST amount paid
Where the scheme applies, purchasers are required to withhold the following amount:
- if the margin scheme applies, 7% of the contract price (or price for supply if no contract price is provided). The Minister can increase this figure up to 9%
- if the margin scheme does not apply, 1/11 of the contract price (or price for supply if no contract price is provided), or
- 10% of the GST exclusive market value if the contract is between associates without consideration or consideration is less than the GST inclusive market value.
Notifying and paying the Commissioner
The purchaser must notify the Commissioner by completing and sending two online forms on or before settlement. The GST amount must be forwarded to the Commissioner on or before settlement.
If the purchaser fails to withhold and remit the GST amount to the Commissioner, the purchaser is liable for a penalty that is equivalent to the GST amount they were required to provide. However, the penalty does not apply if the Notice incorrectly stated there was no requirement to withhold the GST and based on the information known by the purchaser, it was reasonable to believe the Notice was correct. The penalty also does not apply if the purchaser provided the vendor with a bank cheque payable to the Commissioner on or before settlement.
Whilst the new regime may address the concerns raised by the government in collecting lost GST on sales of new properties, developers may be challenged by the reduced sale proceeds that would otherwise be available on settlement to reduce their loan facility in accordance with their lender’s requirements.