ARE YOU BUYING AN APARTMENT, A NEW BUILDING OR SUBDIVIDED LAND?
Where a property is classed as new residential premises or potential residential land (generally newly subdivided land) it is a Purchaser’s obligation to pay the GST component of the purchase price directly to the ATO on behalf of the vendor. This ruling can also aply so substantially renovated property as the sould most likely fit the guidelines as being considered new residential premises.
Why was this introduced?
This measure was introduced under the Taxation Administration Act 1953 in 2018. In 2021 this measure collected $6.1 billion and so far in 2022 $4.1 billion has been collected. It is important to note that this is revenue which should always hae been paid to the ATO and by requiring it to be paid at settlement the Commonwealth is ensuring that individuals and corporations meet their GST obligations.
The idea is to improve the integrity of the GST system for certain transactions and to eliminate phoenix activity. Phoenixing is a practice wherby developers receive the funds from settlement of the sale of their property then dissolve the business before the next BAS is due to avoid paying the GST
GST is to be withheld by the Purchaser and remitted direct to the ATO on or before settlement. This removed the ability for developers to hold on to the GST for up to three months and may have an impact on their cashflow.
how much is required to be withheld?
If the purchase is for a taxable supply of either new residential premises or potential residential land then the withholding amount will be 1/11th of the contract price. If th purchase is a taxable supply under the margin scheme then 7% is required to be witheld. Other transfers to associates (eg. for nil or reduced consideration ) will require 10% of the GST exclusive market value to be witheld.
Vendors will be required to notify any purchaser whether they ARE required to withhold an amount from the purchase price and pay that to the ATO OR whether they ARE NOT required to withhold (the supply may not be taxable or an exclusion applies). This notification must be writing and must be provided at least 14 days before making the supply.
Contracts for the Sale and Purchase of Land will be updated to include a section whereby the vendor can provide these details when preparing the Contract or a separate document may be used if necessary.
If a withholding obligation exists then the notice must include:
- The name and ABN of the supplier;
- The amount that the Purchaser will be required to pay to the ATO;
- When the Purchaser is required to pay this amount (ie settlement date);
- The GST inclusive market value of any non-monetary consideration; and
- Any other matters specified in the Regulations
What happens if the vendor fails to provide a notice?
There are penalties that will apply if the Vendor either fails to provide the required Notice or fails to notify the Purchaser of the required details. If either of these occur then a penalty of $21000 would be payable if the Vendor is an individual and may be 5 times that if a corporation is involved. This penalty would be imposed on every contract the developer fails to provide the required details for.
The Purchaser is required to withhold the amount specified by the Vendor and pay the balance of the sale price as required under the contract. The withheld amount will be remitted to the ATO or or before the day the consideration (other than the deposit) is provided to the Vendor. This is usually the settlement date. If there are multiple Purchasers then the amount can either be paid a a whole or each can pay an amount in proportion to their interest in the property..
There is no requirement for Purchasers to be registered for GST
Prior to settlement a GS property settlement a GST property settlement withholding notification needs to be completed and lodged online to the ATO. A conveyancer or legal representative can do this on the Purchaser’s behalf. This Form needs to be completed as soon as possible and the ATO will provide a unique payment reference number (PRN) and lodgement reference number (LRN).
Once settlement has taken place the GST property settlement date confirmation has to be completed with the unique PRN and LRN provided by the ATO
If settlement does not proceed then the second form is not required.
Once completed and submitted to the ATO payment must be made on or before the day of settlement. The options at present are via the e-conveyancing platform, electronically by direct deposit/Bpay or by Bank Cheque. A Withholding Payment Receipt will be issued via email once finalised.
A Purchaser that fails to pay the withholding amount as required under the Contract may be liable to pay the Commissioner a penalty which is equal to that amount.
There will be no penalty if the Purchaser was given a notice by the Vendor either stating that the premises were not new residential premise or indicating that there was no requirement to withhold any amount for the GST.
WHAT DO I NEED TO DO?
Firstly it is in your best interest to contact your conveyancer when signing the contract so that the process be undertaken as early as possible in order to avoid any hiccups and delays.
ALWAYS talk to a professional if you have any concerns or questions and the best time is before signing the contract. Your conveyancer, accountant, legal adviser will all be able to assist you with the process and ensure that you are fully aware of your obligations.
The team at McKay Business Services are all members of the AICSA and are proud Adelaide conveyancers