New legislation has been implemented to combat “phoenix developers” who construct new houses, claim GST credits on development costs, sell the new houses, and disappear before paying the GST on sale to the ATO.
The GST Withholding measures require the purchaser to withhold an amount from new residential property acquisitions. The amount represents the GST component of the purchase price and is calculated as either:
- 1/11th of the contract price;
- 7% of the contract price (for margin scheme supplies); or
- 10% of the GST exclusive market value of the supply.
The measures relate to sale of residential property contracts signed after 1 July 2018.
The process is summarised as follows:
1. Notice provided by Vendor that GST is required to be withheld, detailing:
- Amount to be withheld
- When the GST is to be paid
- Vendors Name and ABN
Notice is required for all sales of residential premises. This can be included as a standard clause in residential sale contracts. GST will be required to be withheld if it is a sale of new residential premises and potential residential land. Notice is not required for commercial residential property or commercial property.
2. Purchaser to lodge Form One: GST Property Settlement Withholding Notification
This form must be lodged after the contract has been entered into, and before settlement. It is required to be completed by the purchaser or their authorised representative. Upon submission, a unique Payment Reference Number (PRN) and Lodgement Reference Number (LRN) will be provided to assist with further lodgements and payments.
3. Purchaser to lodge Form Two: GST Property Settlement Date Confirmation
This form is required to be lodged on or before the date of settlement and will include payment of the withholding amount using the unique PRN from Form One.
4. Seller to lodge monthly or quarterly Business Activity Statement including GST on sale of property. A credit will be included on the Business Activity Statement for GST Withheld and paid by the purchaser.
The purchaser is not required to register for GST just because they have a withholding obligation.
Strict penalties will apply to both the purchaser, if they fail to withhold, and seller, if they fail to provide notice.
Even if the seller fails to provide notice and GST does apply to the transaction, the buyer is still obliged to withhold from the payment.
The new notification and withholding rules do not apply to contracts:
- Entered into before 1 July 2018
- Where any consideration for the supply (other than a deposit) is provided before 1 July 2020
It is now more important than ever that your contracts be reviewed by your accountant or solicitor for correct treatment of GST for both purchases and sales of residential property.