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GST withholding - New residential premises and potential residential land

GST withholding - New residential premises and potential residential land

By Derry Davine

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The Treasury Laws Amendment (2018 Measures No.1) Act 2018 has been passed by Federal Parliament and received Royal Assent on 29 March 2018. No changes were made to the draft Bill during its progress through the Parliament. Schedule 5 of the Act introduces the GST withholding regime to Schedule 1 of the Taxation Administration Act 1953.

The regime applies to contracts entered into on or after 1 July 2018; it also applies to contracts entered into before 1 July 2018 where the first consideration (other than the deposit) is received on or after 1 July 2020.

A vendor must give a purchaser written notice before making a supply, by way of sale or “long- term lease”, of –

  • “residential premises” except “commercial residential premises”; and
  • “potential residential land” except where the purchaser is registered for GST and acquires the land for a *creditable purpose.

The notification requirements apply to a wider range of supplies than the withholding obligation. There is no minimum notice period and penalties apply for failure to notify.

The withholding obligation applies to supplies of –

  • “new residential premises” but not to those created by “substantial renovations” or “commercial residential premises”; and
  • “potential residential land” included in a “property subdivision plan” that does not include a building used for a commercial purpose and the purchaser is not GST- registered and acquiring for a “creditable purpose”.

The amount to be withheld is determined by reference to the GST inclusive contract price, but without taking into account settlement adjustments or margin scheme calculations.

In the case of margin scheme supplies (unless the Commissioner determines otherwise), the withholding rate is 7%; for non-margin supplies (not involving “associates”), the rate is one-eleventh.

It is sufficient compliance for a purchaser to hand the vendor at settlement a bank cheque payable to the Commissioner for the appropriate withholding amount and this is likely to become standard practice except in PEXA settlements.

A purchaser, in a transaction requiring a withholding, must notify the Commissioner in relation to the withholding and, in practice, there will be two forms for the recipient to complete – one to obtain a payment reference for the withholding and the other to be lodged at the time of payment. It is anticipated that these forms will be completed online.

A penalty applies to failure to withhold and the failure of a vendor to notify is no excuse. However, payment to the Commissioner relieves a purchaser from liability to any entity other than the Commissioner to pay or account for that amount and so a purchaser who has not received a notice but who believes that a withholding is required, should take advantage of the protection offered by this provision by paying the relevant amount to the Commissioner.

From now on, contracts of sale should include a special condition addressing the new regime.

 

Learn more about GST withholding at the LIV's Property Law Conference, Friday 24 August 2018. Click here for more information.

 


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