Effective as of 1 July 2018, the Australian Taxation Office (ATO) will implement new legislation to amend current laws for GST remittance on property sales.
To this point, it was the seller’s responsibility to pay GST to the ATO after their property transaction had settled. The amended legislation will now require the buyers of “newly constructed residential properties or new subdivisions”, or “off-the-plan contracts for residential properties”, to remit all GST payable directly to the ATO. These changes place legal obligations on both the buyer and the seller to remit GST, and the penalties for failure to do so are severe.
Note: These changes will not apply to properties used for a commercial purpose.
What are the new obligations for buyers?
Buyers of new residential property and potential residential land will be required to withhold 1/11 of the purchase price, and that amount must be paid directly to the ATO. Similarly, if the margin scheme is to apply, then a rate of 7% of the purchase price will be the withholding amount.
To satisfy the strict compliance of GST remittance, the buyer’s representative must prepare the following:
- Prior to settlement – submit a GST property settlement withholding notification form to the ATO;
- On settlement – withhold the GST amount from the purchase price, and pay only the balance to the seller;
- Remit the GST amount to the ATO by submitting a GST property settlement date confirmation form.
What are the notification obligations for developers?
Sellers will be required to provide written notification to the buyer regarding whether the buyer will need to withhold an amount from the purchase price to pay to the ATO.
It is vital that notification be made in writing, and it must include the following:
- the name and ABN of the seller;
- the amount that the buyer will be required to pay to the ATO;
- when the buyer is required to pay that amount;
- the GST inclusive market value of any non-monetary consideration; and
- any matters specified in the Regulations.
The liability for the GST remains with the property developer, and there are no changes to how property developers lodge their business activity statements (BAS). Once the BAS has been processed, the seller will receive tax credits per usual way.
Will there be transitional provisions?
Contracts signed and entered into before 1 July 2018 are exempt from these changes, provided that the property transaction will settle before 1 July 2020. If the contract does fall within this transitional period, then the seller must remit the GST to the ATO when their next BAS is due.
Similarly, the transitional provision will not apply to contracts entered into before 1 July 2018 where any consideration for the property (other than a deposit) is provided after 1 July 2020. For example, if payment for the sale of the property occurred on 2 July 2020, the transitional provision will not apply.
What are the penalties?
Sellers that fail to provide written notice to the buyer of their GST obligations may incur a strict liability offence or an administrative penalty. The maximum penalty for a strict liability offence is 100 units. Currently, one penalty unit is $210.00. The penalties are much more severe if the seller is a company, as the Court holds discretion to increase penalties by fivefold.
Buyers that fail to pay the withheld amount may be liable to the same penalties described above. It should be noted that buyers will not have penalties applied if the seller fails to provide adequate notice or has misrepresented, to the seller, that remittance of GST was not owed.
Whether you are selling or purchasing property, compliance with the new obligations is essential. Both parties should consult a solicitor for property contracts for new residential properties or new subdivisions plans. Our friendly property team at Stephens & Tozer is readily available to assist you with any queries.
Leanne Foo is a solicitor in the Property & Commercial team at Stephens & Tozer. Leanne’s expertise lies in conveyancing and also extends to all areas relating to property law. Should you require any assistance in commercial and property law, contact our team at Stephens & Tozer.
28 June 2018