Pub­li­ca­tions

The GST with­hold­ing regime starts July 2018 — A look at the trans­ac­tions to which it will apply


The new GST with­hold­ing’ regime for sales of new res­i­den­tial prop­er­ties and vacant res­i­den­tial lots will apply from 1 July 2018 onwards.

WHY

The changes are an anti-avoid­ance mea­sure to pre­vent devel­op­er com­pa­nies from sell­ing prop­er­ties for a pur­chase price that includes GST and then dis­solv­ing their busi­ness before they are liable to remit the GST (known as a form of phoenix­ing’).

To over­come the prob­lem, the new leg­is­la­tion will require pur­chasers to remit the GST ele­ment of the pur­chase price direct­ly to the ATO at settlement.

INNUTSHELL

There is a new notice require­ment for ven­dors
Ven­dors of all res­i­den­tial premis­es and poten­tial res­i­den­tial land (not just new premis­es or new build­ing lots) must noti­fy the pur­chas­er before com­ple­tion (ie before the sup­ply is made) as to whether or not the sup­ply is one which attracts the pur­chas­er GST pay­ment oblig­a­tion. If so, the notice must include the amount of GST the pur­chas­er must pay to the ATO on behalf of the ven­dor.

The NSW Law Soci­ety stan­dard form con­tract for sale of land has been amend­ed to include the nec­es­sary notice, where it
applies.

Pur­chasers may have to with­hold GST and pay to ATO
The new pur­chas­er GST pay­ment oblig­a­tion will only apply
where:

  • the ven­dor is GST reg­is­tered and sup­plies the land in the course of its busi­ness (ie where the sale is a tax­able sup­ply”) AND
  • the trans­ac­tion relates to a new res­i­den­tial prop­er­ty or a vacant res­i­den­tial lot in a sub­di­vi­sion AND
  • in the case of a vacant res­i­den­tial lot, the pur­chas­er is not GST reg­is­tered (or is reg­is­tered, but is not buy­ing the land for a GST cred­itable purpose).

There­fore, the pur­chas­er GST pay­ment oblig­a­tion will not apply
to:

  • the sale of a used’ res­i­den­tial dwelling
  • the sale of a non-res­i­den­tial prop­er­ty (eg com­mer­cial or indus­tri­al), or
  • the sale of vacant res­i­den­tial land sold in a busi­ness to busi­ness’ trans­ac­tion (ie where the pur­chase is for a GST cred­itable purpose).

The amount of the purchaser’s GST pay­ment
The pur­chas­er must pay 1/​11th of the con­tract price to the ATO, unless the mar­gin scheme applies, in which case the amount to be paid to the ATO is 7% of the con­tract price.

A MORE DETAILED SUM­MA­RY OF THE GST WITH­HOLD­INGAND NOTICE REQUIREMENTS

1 The purchaser’s pay­ment obligation

  • The new oblig­a­tion for the pur­chas­er to with­hold the GST from the ven­dor and pay it to the ATO applies where the sale is a tax­able sup­ply and the prop­er­ty under the sale con­tract falls into one of 2 cat­e­gories, which we will refer to as New Res­i­den­tial Prop­er­ty” and Vacant Res­i­den­tial Lot”.
  • The 2 cat­e­gories are based on the def­i­n­i­tions of new res­i­den­tial premis­es and poten­tial res­i­den­tial land in the GST leg­is­la­tion, but are some­what nar­rowed down.
  • They are:

New Res­i­den­tial Prop­er­ty
This is premis­es occu­pied for res­i­den­tial accom­mo­da­tion (or intend­ed or capa­ble of being so occu­pied) that have not pre­vi­ous­ly been sold as res­i­den­tial premis­es.
Res­i­den­tial premis­es cre­at­ed as a result of sub­stan­tial ren­o­va­tions to an exist­ing build­ing are exclud­ed, and so are stra­ta lots cre­at­ed by reg­is­tra­tion of a stra­ta plan in respect of an exist­ing res­i­den­tial building.

Vacant Res­i­den­tial Lot
This is vacant land in a sub­di­vi­sion plan (reg­is­tered or unreg­is­tered) that is per­mit­ted to be used for res­i­den­tial purposes.

  • The oblig­a­tions also apply in con­nec­tion with the grant of a long-term lease (which is essen­tial­ly a lease or licence for at least 50 years).


2 Vendor’s notice obligation

  • The ven­dor must noti­fy pur­chasers whether or not the GST pay­ment oblig­a­tion applies to the sale. The notice must be giv­en before completion.
  • The notice require­ment applies to a broad­er range of sales than those where the pay­ment oblig­a­tion aris­es, as it applies to sales of res­i­den­tial premis­es and poten­tial res­i­den­tial land, as defined in the GST leg­is­la­tion. The notice oblig­a­tion is there­fore essen­tial­ly applic­a­ble to all res­i­den­tial sales.
  • The notice must be in writ­ing and: 
    • must state whether the pur­chas­er will be required
    • to make a pay­ment of GST; and if pay­ment is required, must also state the vendor”s name and ABN, the amount the pur­chas­er is required to pay and when the pur­chas­er must pay.
  • The omis­sion to com­ply with the vendor’s notice oblig­a­tion is a strict lia­bil­i­ty offence attract­ing 100 penal­ty units (cur­rent­ly $11,000).

3 When must the pur­chas­er pay?

• The pur­chas­er must pay the amount direct­ly to the ATO on the date when any con­sid­er­a­tion (oth­er than the deposit) is first pro­vid­ed. This will be at com­ple­tion except in the rare case where pay­ments of part of the bal­ance of the price are to be made before completion.

4 How much must the pur­chas­er pay?

  • • The pur­chas­er must pay an amount equal to 1/​11th of the con­tract price to the ATO, unless the mar­gin scheme applies.
  • • If the mar­gin scheme applies, the pur­chas­er must pay 7% of the con­tract price.

5 Tim­ing

  • The pur­chas­er pay­ment and ven­dor notice require­ments each apply in con­nec­tion with: 
    • con­tracts entered into before 1 July 2018 where com­ple­tion takes place on or after 1 July 2020; and
    • con­tracts entered into on or after 1 July 2018, regard­less of when com­ple­tion takes place.
  • The pay­ment and notice regime does not apply if com­ple­tion takes place before 1 July 2020 under a con­tract entered into before 1 July 2018.