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GST withholding regime – changes for property transactions

The Exposure Draft for the GST withholding regime for property transactions has been released. This withholding regime was announced as part of this year’s Federal Budget and is targeted at increasing GST compliance for property transactions by having purchasers remit GST directly to the Australian Taxation Office.

Withholding obligation

The new GST withholding regime applies to supplies of ‘new residential premises’ (such as newly built houses), and ‘potential residential land’ that are included in a plan of subdivision and have not previously been sold as potential residential land (such as house and land packages).

Purchasers will be required to withhold one eleventh of the purchase price. This is irrespective of whether the margin scheme is used to calculate GST on the supply. The withholding obligation arises on the day the consideration for the purchase (other than the deposit) is first provided, which will typically be settlement (but may be earlier where the purchase price is paid in instalments).

Supplies by members of a GST group to another member of the same group, and supplies by participants in a joint venture to another participant in the joint venture are excluded from the GST withholding regime.

Notification obligations

Developers will be required to provide written notice to purchasers at least 14 days before making the supply, advising if an amount is required to be withheld (and if so, providing details such as the supplier’s name, ABN, the amount to be withheld and when the amount is required to paid).

Compliance and refunds

Developers will receive a credit for the GST remitted by the purchaser directly to the ATO. Note that the credit is only available where the amount withheld is actually paid by the purchaser to the ATO.

Developers will be eligible to apply for a refund of overpaid GST if they applied the margin scheme (and the actual GST payable was less than the amount withheld) or if GST was incorrectly withheld. However, developers lodging business activity statements on a monthly basis will not be eligible for the refund (and instead will receive a refund upon lodging their business activity statement in the usual manner).

Transitional rules

The new withholding regime and notification requirements will apply to property transactions where the first consideration (other than the deposit) is provided on or after 1 July 2018.

However, no withholding will apply where the contract of sale is entered into before 1 July 2018 and the first consideration is provided before 1 July 2020. Similarly, no notification is required where the contract of sale is entered into before 1 July 2018.

Further, for development agreements entered into before 1 July 2018 which include a GST component as part of the ‘waterfall’ of payments from the development proceeds, the Exposure Draft provides that the parties to the arrangement are discharged from all liability to pay the GST component to the supplier as part of the waterfall.

Authors
Michael Taylor-Sands | Partner
T +61 3 9258 3651
E michael.taylor-sands@maddocks.com.au
Daniel Hui | Lawyer
T +61 3 9258 3563
E daniel.hui@maddocks.com.au

The Exposure Draft for the GST withholding regime for property transactions has been released. This withholding regime was announced as part of this year’s Federal Budget and is targeted at increasing GST compliance for property transactions by having purchasers remit GST directly to the Australian Taxation Office.

Withholding obligation

The new GST withholding regime applies to supplies of ‘new residential premises’ (such as newly built houses), and ‘potential residential land’ that are included in a plan of subdivision and have not previously been sold as potential residential land (such as house and land packages).

Purchasers will be required to withhold one eleventh of the purchase price. This is irrespective of whether the margin scheme is used to calculate GST on the supply. The withholding obligation arises on the day the consideration for the purchase (other than the deposit) is first provided, which will typically be settlement (but may be earlier where the purchase price is paid in instalments).

Supplies by members of a GST group to another member of the same group, and supplies by participants in a joint venture to another participant in the joint venture are excluded from the GST withholding regime.

Notification obligations

Developers will be required to provide written notice to purchasers at least 14 days before making the supply, advising if an amount is required to be withheld (and if so, providing details such as the supplier’s name, ABN, the amount to be withheld and when the amount is required to paid).

Compliance and refunds

Developers will receive a credit for the GST remitted by the purchaser directly to the ATO. Note that the credit is only available where the amount withheld is actually paid by the purchaser to the ATO.

Developers will be eligible to apply for a refund of overpaid GST if they applied the margin scheme (and the actual GST payable was less than the amount withheld) or if GST was incorrectly withheld. However, developers lodging business activity statements on a monthly basis will not be eligible for the refund (and instead will receive a refund upon lodging their business activity statement in the usual manner).

Transitional rules

The new withholding regime and notification requirements will apply to property transactions where the first consideration (other than the deposit) is provided on or after 1 July 2018.

However, no withholding will apply where the contract of sale is entered into before 1 July 2018 and the first consideration is provided before 1 July 2020. Similarly, no notification is required where the contract of sale is entered into before 1 July 2018.

Further, for development agreements entered into before 1 July 2018 which include a GST component as part of the ‘waterfall’ of payments from the development proceeds, the Exposure Draft provides that the parties to the arrangement are discharged from all liability to pay the GST component to the supplier as part of the waterfall.

Authors
Michael Taylor-Sands | Partner
T +61 3 9258 3651
E michael.taylor-sands@maddocks.com.au
Daniel Hui | Lawyer
T +61 3 9258 3563
E daniel.hui@maddocks.com.au