What is Goods and Services Tax (GST) Withholding?
GST Withholding can impact both Purchasers and Vendors, and it is important for all parties involved in a sale and purchase of land to understand their obligations.
Since 1 July 2018, Purchasers of new residential properties and potential residential properties are required to withhold GST from the purchase price of the property and pay it to the Australian Taxation Office (ATO) on or before settlement.
These requirements were introduced in The Treasury Laws Amendment (2018 Measures No. 1) Bill 2018 which gained royal assent on 29 March 2018.
Why was GST Withholding introduced?
The GST withholding regime was initially introduced predominantly to combat phoenixing tax avoidance practices regularly undertaken by property developers.
The ATO identified that it was common practice for developers to execute contracts of sale for consideration which included GST but then dissolve the Vendor company prior to remitting the required tax. The developers would then register a new company for their next project.
The requirement that GST is withheld and paid at settlement prevents this from occurring.
Why was GST Withholding introduced?
The requirement to withhold GST only applies where:
- The Vendor is registered or ought to be registered for GST; and
- The property is new residential premises or potential residential land (that is, land that could be used to build new residential property).
GST Withholding does not apply to the sale of commercial or existing residential land.
What are a Vendor’s obligations?
Prior to settlement, all Vendors of residential land are required to provide a Purchaser with written notice disclosing whether GST withholding applies or not. It is important to note that the notification requirements apply to the supply of all residential premises, not only those to which withholding applies.
The written notice must state the following:
- Whether the Purchaser is required to pay a withholding amount from the contract price to the ATO;
- The amount needed to be withheld; and
- The date the payment is due.
This notice can either be provided in the Contract of Sale or as a separate document.
What are the penalties for failing to comply
Failure by a Vendor to provide the Purchaser with the GST withholding notice is a strict liability offence. A breach of this requirement can result in a maximum penalty of $21,000 for an individual and $105,000 for a corporation.
Failure by a Purchaser to withhold GST at Settlement and remit to the ATO will result in a Purchaser being held liable for the amount the Purchaser should have withheld.
At Burke Lawyers, we will assist you, through the conveyancing process from start to finish. This will include advising you on your obligations regarding GST, if you are a Vendor selling your property or, your obligations to withhold and remit GST to the ATO at settlement, if you are a Purchaser acquiring a property.
To discuss further, please contact Kristy Muhlhan, Principal, who heads up our Property & Development Division at Burke Lawyers.
