New Laws: GST On New Properties

The Australian Tax Office (ATO) has taken steps to put the onus on Purchasers to collect the GST on all new residential properties to improve the integrity of collection of GST from developers.

On 29 March 2018, amendments to the legislation were passed to come into effect on 1 July 2018. Contracts entered into before 1 July 2018 will not be affected by this change as long as the transaction settles before 1 July 2020.

The new laws require Purchasers of new residential premises and new ‘potential residential land’ subdivisions to withhold the GST on the purchase price at settlement and pay it directly to the ATO.

‘Potential residential land’ is broadly defined to include any land which is legally possible to be used for residential purposes and on which no residential premises currently exist.

The Hon Kelly O’Dwyer MP said:

“The new arrangements will increase compliance with tax law, level the playing field for compliant businesses, and secure GST revenue for the states and territories to provide essential services that Australians rely on.”1

How will this impact our purchaser client?

The purchaser must remit the GST withholding amount to the ATO on or before the day any of the consideration for the supply is first provided (other than as a deposit), which will usually be on settlement.

If the purchaser fails to withhold and pay the required amount to the ATO, the purchaser may be liable to a penalty equal to the amount of the withholding obligation.

These new obligations will greatly increase the complexity and risk of what should be a simple purchase of a new home.

Now purchasers of property are liable to collect tax on behalf of the ATO for both GST and CGT for any foreign residents (where the sale price is over $750,000.00).

How will this impact developer vendor clients?

No penalty will apply if the purchaser relies on a notice provided by the vendor which indicates that the purchaser is not required to withhold, and there is nothing in the contract or other information known to the purchaser which makes it unreasonable for the purchaser to believe that the vendor’s statement is correct.

So the vendors will now need to obtain a notice from the ATO prior to settlement if they are not liable to pay GST, or a variation notice if the margin scheme applies.

If an amount has been withheld in error, the vendor may apply to the ATO for a refund of the amount of the payment made in error outside of the BAS lodgement process.  The vendor must apply to the ATO at least 14 days before GST is payable on the supply.

In all other cases, the credit and any available refund must be sought as part of the BAS lodgement process. This could seriously impact cashflow and definitely will increase the accounting and legal fees associated with a relevant transaction.

All Property Developers who have developments underway that may be delayed past the 1 July 2020 deadline, should consider reviewing any sales contracts they have entered into and the effect this law will have on their sales.

2018 edition of the Contract

Under the 2018 Edition of the Contract:

  1. The vendor/supplier must notify the purchaser in writing as to whether GST withholding is required before the supply is made.
  2. The purchaser/recipient of the supply must withhold and pay to the ATO:
  • 1/11th of the “contract price”; or
  • 7% of the “contract price” where the margin scheme applies.

This new law will require amending the current Law Society / REIN copyright contracts in each jurisdiction to include the required information under the new legislation to be disclosed in the contract by the vendor.

These changes add additional steps to the complex conveyancing transactional procedure and adds to the extensive legislation legal practitioners need to advise their clients on.

If you are buying or selling real property in NSW, contact Kreisson for accurate, up-to-date and relevant advice.

Download this article

This communication is sent by Kreisson Legal Pty Limited (ACN 113 986 824). This communication has been prepared for the general information of clients and professional associates of Kreisson Legal. You should not rely on the contents. It is not legal advice and should not be regarded as a substitute for legal advice. The contents may contain copyright.