As of the 1st of July 2018, changes to the Goods and Services Tax (GST) legislation have been introduced which alters the way that GST is paid to the Australian Taxation Office on the sale of new residential land or premises, by way of introduction of a GST Withholding regime.
Purchasers will be required to remit the applicable GST under the sale contract to the ATO as part of the settlement process rather than paying the GST amount to the Seller. Purchasers do not need to register for GST just because they have a withholding requirement nor does it alter the amount payable by them to the seller. The applicable withholding amount is generally 7% for contracts in which the margin scheme is applied and 10% for all other contracts. Any difference between the GST withheld at settlement and the GST actually applicable will be reconciled when the seller lodges their Business Activity Statement.
This change has been brought around as some sellers have failed to remit the GST to the ATO, however are still claiming their GST credits on costs associated with the contracts and development. The obligation to remit the GST now falls to the purchasers under the new regime, which is believed to cancel out any side-stepping of GST payments.
This is not the first time that the Government has effectively delegated tax collection to purchasers of property, as there are parallels between this new GST regime and the foreign resident capital gains tax withholding regime, which commenced in July 2017 (in which CGT must be withheld and paid directly to the ATO unless the ATO verifies that no CGT is to be withheld as a result of that transaction)
If you are purchasing a property, then we will ensure that your withholding obligations are met as part of the conveyancing process. However, if you are registered for GST and sell new residential land or premises, you ought to speak to us or your accountant prior to entering into any contract of sale to ensure that there are no unexpected surprises with cash flow following settlement.
This post is general information only. It is not a substitute for legal advice from a lawyer. If you have a legal issue, you should always contact your lawyer to obtain advice that is relevant to your circumstances.
