Purchasers of new residential property to pay GST directly to ATO from 1 July 2018

The Australian Government has amended legislation to require buyers of new residential premises and new subdivisions of potential residential land to withhold the GST component of the purchase price, and to pay that amount straight to the Australian Tax Office (ATO) on settlement.

For every residential contract entered into from 1 July 2018, every seller of residential real estate must advise the buyer whether the sale is of a “new residential premises” or a “potential residential land”, as defined in the A New Tax System (Goods and Services Tax) Act 1999.

From 1 July 2018, purchasers of new residential premises or potential residential land are required to withhold an amount of the contract price, and pay this directly to the ATO as part of the settlement process.

Announced as part of last year’s Federal Budget, this reform is designed to improve the integrity of GST on property transactions.

This change takes effect on 1 July 2018, however the Government have announced it will introduce a transitional arrangement to this budget measure, which will exclude contracts signed before 1 July 2018, as long as the transaction settles before 1 July 2020.

Essentially, the new obligations require:

1. the Sellers of all residential premises or potential residential land to notify the Buyer whether the Buyer will be required to withhold the required GST amount from the settlement proceeds and to pay this amount to the Australian Taxation Office (“ATO”); and

2. the Buyers of new residential premises or potential residential land to lodge two separate online forms with the ATO and to ensure that the required GST amount is withheld from the settlement proceeds and paid to the ATO.

Contracts for the sale of residential premises or potential residential land entered into after 1 July 2018 should include appropriate provisions dealing with these obligations.

Buyers must withhold the GST amount that is deemed to apply, and pay this directly to the ATO on or before the settlement date (or another time determined by legislative instrument) rather than the seller. They must give notice of the intended payment to the ATO at least five days before they are required to make the payment.

Buyers should ensure that they are aware of, and comply with, their withholding obligations, whether or not those are described in the contract.

This withholding mechanism changes the process for the collection of the GST. It doesn’t, though, change who is liable for the GST–the seller–but it does create new obligations for buyers, sellers and their respective representatives.

The new laws don’t make the transfer of land conditional on payment of the withholding amount but, in practice, settlement is unlikely to proceed until the seller is satisfied that the withholding amount will be paid to the ATO by the purchaser.

Supreme Settlements, your friendly settlement agent, conveyancer, can provide you with more detailed information and advice on the sale and purchase of your property.