Shifting the Obligation for GST

SHIFTING THE OBLIGATION FOR GST PAYMENT

TREASURY LAWS AMENDMENT (2018 MEASURES NO.1) ACT 2018 (“ACT”)

IN BRIEF

The GST laws have been amended to require buyers of certain types of property to withhold the GST payable by the vendor. This new requirement takes effect from 1 July 2018 and applies to any contract of purchase under which the purchase price is payable on or after 1 July 2018.

This requirement does not, however, apply to any contract entered before 1 July 2018 where the purchase price (not including the deposit) is payable before 1 July 2020.

The amendment is designed to ensure payment of GST for taxable supplies of property.

THE DETAIL

Application

The requirement applies to the sale of “new residential premises” and “potential residential land” where the vendor is registered or required to pay GST.

“New residential premises” are premises which has not been previously been sold as residential premises, ie, newly built premises.

“Potential residential land” is defined in the GST Act as “land that it is permissible to use for residential purposes, but does not contain any buildings that are residential premises”. The withholding obligation applies if:

  • the potential residential property is property in a sub-division plan;
  • the property does not contain any building that is in use for commercial purposes; and
  • the buyer is not registered for GST or is not making the acquisition for creditable purposes.

Therefore, the obligation to withhold would apply if the property is in a sub-division plan and the land is capable of being used for residential purposes under the relevant planning laws. This may catch land that is zoned for mixed use, which includes residential use.

How much to Withhold

The amount to be withheld is 1/11th of the GST inclusive contract price disregarding “normal adjustments that apply to transactions of that kind”, ie, apportionments or adjustments for various outgoings are to be disregarded. If the margin scheme applies, 7% of the contract price.

Vendor Notification Requirement

All vendors of residential and potential residential land must notify the buyer if the withholding obligation applies. This requirement applies whether or not the vendor is registered or required to be registered for GST.

The notice is not required if the land being sold is commercial or where the buyer is registered for GST and is acquiring the land for creditable purposes.

The notice, which can be incorporated into the contract for sale, must provide the following information:

  • state this it is the notification required for the purposes of section 14-255 of the Act
  • the vendor’s name and ABN
  • the amount to be withheld and paid under section 14-250 of the Act
  • when the money must be paid (eg, “at settlement”)
  • the GST inclusive amount or GST inclusive market value where there is no purchase price
  • any other information specified in the regulations (none as yet)

Buyer’s Obligation

The buyer’s must complete a form notifying the Commissioner of Tax of the amount payable on or before the date it is payable. Presumably this form will not be necessary if payment is not required.

There are penalties for non-compliance.

This article is designed as a brief outline of the new law relating to GST Withholding and is for general information only. It is not legal advice. The application of the law may vary depending on the transaction

The information in this article is derived from the Law Companion Ruling LCR 2018/4 issued by the ATO. For a copy of this Ruling or if you have any questions regarding the new requirement, please contact Narinder Jessy on 0421 979 858.

Narinder is the principal of Jessy Legal, which is a property and commercial practice with emphasis on property transactional and commercial leasing advice and representation. For more information on Jessy Legal, visit the website www.jessylegal.com.au.

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