Last year, the Australian Tax Office implemented new changes to the way GST Withholding is paid for certain property transactions - requiring additional processes and procedures to be undertaken.
Under previous legislation, the payment of a withholding amount had been the responsibility of a property supplier, however in response to GST amounts not being settled to the ATO within the sector ('phoenixing'), amendments have been introduced.
The following article provides an update on the new provisions, and addresses their impact on purchasers and suppliers.
New GST Withholding Amendments, Definitions, & Where Required?
As of 1 July 2018, purchasers of a new residential property or potential residential land will be required to pay a GST Withholding amount directly to the ATO at the date of settlement.
Under these amendments, a “new residential property” is defined as residential premises which have not been previously sold as a residential premise and have not previously been subject to a long-term lease.
These can include house & land packages, off-the-plan homes, display, and new apartments.
Additionally, any residential buildings which have been built to replace any existing premises are deemed to be a “new residential property”.
For “potential residential land”, the provisions define this as land that could be used for residential purposes, not containing any existing resident premises, OR land that could be determined by property subdivision plan.
Where there is no GST Withholding required under the provisions, is if a new residential premise is created through “substantial renovations” OR where a residential premises ceases to be determined as “new” as a result of being continuously rented for more than five years since construction.
Other property transactions excluded from the withholding obligation can include:
- New commercial residential premises - hotels, boarding houses, caravan parks
- Commercial property
- Potential residential land supplied to a GST registered business
- Potential residential land that contains a building currently in use for commercial purposes
What are the new steps to be undertaken as part of the new 'GST at Settlement' process?
As part of the new changes, purchasers will be notified in writing before settlement by the property supplier outlining whether a GST Withholding obligation is applicable.
Any purchasers that are required to pay a withholding amount, must now complete and submit two online forms via the ATO website.
We’ve outlined the forms & their nature in the table below:
|Form One - GST Property Settlement Withholding Notification||
This form is used by the ATO for informational purposes, advising that a property transaction is upcoming.
The form contains details about the property supplier, the purchaser(s), property details, and the expected settlement date.
|Form Two - GST Property Settlement Date Confirmation||
Submitted by the purchaser with the ATO to advise that a settlement has occurred.
The form can be submitted at the time of the withholding obligation becomes due, either at settlement, or as soon as practical after settlement.
It is important to note, if purchasing multiple properties, the purchaser will need to lodge new forms and make withholding payments for each property transaction.
Furthermore, a purchaser can engage and authorise a representative (such as a solicitor or accountant) to lodge the forms on their behalf, by providing a signed declaration.
How much is the GST Withholding Amount to be paid and when is it due?
The amount withheld and paid to the ATO is to be made after lodgement of Form Two – GST Property Settlement Date Confirmation; and is calculated by one of the following three ways:
- 1/11th of Contract Price;
- 7% of the Contract Price - where Margin Scheme is applied; OR
- 10% of the GST exclusive market value if the supply is made between associates
Please note, delaying payments, failing to submit the above forms on time or providing the incorrect information, may result in penalties from the ATO.
For Suppliers, what changes have been introduced?
As mentioned previously, suppliers must now notify purchasers in writing of their GST Withholding obligation (if applicable) before settlement.
Additionally, suppliers are also required to continue reporting all ‘Property Sales’ & ‘GST on Sales’ as part of their Business Activity Statement.
However, under the new changes, a credit will be issued to a supplier’s ‘GST Property Credits’ account equal to the withheld amount paid by the purchaser. This credit is then transferred from the ‘GST Property Credits’ account into the Activity Statement account when the BAS is lodged for the relevant period.
For More Information
Should you have any questions on the changes or for more information on how these may impact you, please feel free to contact the Archer Gowland office on (07) 3002 2699.
 “Substantial renovations of a building are renovations in which all or substantially all, of a building is removed or is replaced. However, the renovations need not involve removal or replacement of foundations, external walls, interior supporting walls, floors, roof or staircases” – GSTR 2003/3
The information contained in this article is of a general nature and does not take into account personal circumstances. Before making any decisions based on the factual information contained in this document, please consult with your financial adviser.