GST Withholding Law

The Real Estate Institute of Queensland has released new legal contracts for the sale of residential property and units and commercial property to bring it into line with the new GST requirements under the GST Withholding Law. 

Previously, developers would collect GST from buyers as part of the purchase price and remit it to the Australian Taxation Office. However, from 1 July 2018, with the introduction of the GST Withholding Law, for any new contracts for the sale of new residential premises or potential residential land (including leases with a term of 50+ years of new residential premises), purchasers must pay from the purchase price the GST component directly to the ATO.

The term “new residential premises” is defined in section 40-75 of the GST Law Act. A property is a “new residential premises” if it has not previously been sold as residential property or is the construction of a new building to replace a demolished building on the same land.

The expression “potential residential land” is defined in section 195-1 of the GST Law Act as land which is permissible to be used for residential purposes but does not contain any buildings which are residential premises and has not previously been sold as potential residential land.

The types of properties that would be “new residential premises” and “potential residential land” include new apartments, newly subdivided land lots and house and land packages sold under a single contract.

Process for withholding GST at settlement

1. 14 days prior to settlement, the seller must give the buyer a notice stating whether GST withholding applies, how much GST is required to be withheld, when it is to be paid and the seller’s ABN.
2. If GST withholding does not apply, the seller must give the buyer a notice that there is no withholding obligations.
3. The amount of the GST payable is 1/11^th of the contract price or 7% of the contract price if the margin scheme applies.
4. The Buyer must pay the GST withheld amount to the ATO immediately after settlement.
5. On or before settlement, the buyer must notify the ATO of the GST withholding amount it is expecting to pay to the ATO, the details of the parties to the transaction and the details of the transaction generally, including the settlement date.
6. A seller can expect to incur a substantial financial penalty for failing to give a buyer the notice as stated above.
7. Abuyer can expect to incur a penalty equivalent to the GST component for failing to withhold the GST amount where it is required to be withheld and paid to the ATO.

From a conveyancing perspective the legal impact on this change in law is somewhat administrative only. For a seller it may cause cash flow restrictions that they may not have usually experienced given the immediate remittance of the GST on the transaction. For a buyer this new legal obligation does increase the complexity and risk in buying new property given the possibility for financial penalty.

Preston Law in Cairns can provide legal advice on the sale of residential property and units and commercial property according to GST Withholding Law.Contact the team at Preston Law in Cairns for legal advice.