From 1 July 2018 buyers of new residential properties / land may be required to withhold an amount from the contract price and pay that amount directly to the ATO. The amount a buyer must withhold and pay to the ATO is:
1/11th of the contract price (for fully taxable supplies);
7% of the contract price (for margin scheme supplies); or
10% of GST exclusive market value of the supply (for supplies between associates for a price less than GST inclusive market value).
There are some exclusions from the new withholding laws for property which include:
- Sales of commercial property and commercial residential developments;
- New residential premises created by substantial renovations; and
- Taxable supplies of vacant land between GST registered businesses where the Buyer is entitled to a full input tax credit on the purchase.
There is also transitional relief available for contracts entered into before 1 July 2018 that settle before 1 July 2020. In those circumstances the Buyer is not required to withhold an amount from the supplier and no penalties will be imposed on the Buyer for a failure to withhold.
At settlement, the lawyer acting for the buyer will organise a cheque payable to ATO for the GST from the balance of the purchase price.
Buyers do not need to register for GST just because they have a withholding obligation.
This is not a new tax. It simply changes the timing when GST is payable to the ATO.
In practical terms the seller will receive less at settlement – by the amount of the ATO obligation – which may need to be factored into the seller’s cash flow and debt repayments.
The seller must let the buyer know, in writing, if they are required to withhold an amount from the contract price and pay it to the ATO. Penalties may apply for failing to provide the required notice.
The supplier must provide the following information to a buyer that is required to withhold:
Their name and ABN;
The amount that must be withheld; and
When the amount is due to be paid to the ATO.
It is important that you use a lawyer who is familiar with the changes as there are penalties for non-compliance. Blunden & Montgomery Solicitors have many years of experience in this field and have the expertise to give you sound practical advice to protect your assets.