From 1 July 2018 a purchaser acquiring new residential premises, or land that could be used to build new residential property, is responsible for withholding GST equal to 1/11th of the GST inclusive purchase price – this is the case whether or not the sale price is disclosed to be GST inclusive.
A person purchasing or entering into a long-term lease agreement of new residential premises or land that could be used to build new residential premises, must withhold an amount of GST from the contract price of the sale (supply) and pay that amount to the ATO after settlement.
New residential premises are premises that:
- have not previously been sold as residential premises, or have not previously been subject to a long-term lease;
- have been created by ‘substantial’ renovations; or
- have been built to replace demolished premises.
Generally, premises cannot be treated as ‘new residential premises’ if the premises have been used solely for rental purposes for the period of at least five years since they were built, substantially renovated or replaced.
Supplier Notification
The supplier (the seller of the property the property) must supply the purchaser with information to assist in complying with the GST withholding obligation. This information (known as a ‘supplier notification’) can be supplied in the contract for sale or as a separate notice in written form. All Law Societies (except for Northern Territory) have revised their standard land contracts to include the notification. The ATO can apply penalties if the purchaser fails to pay the required withholding amount. A GST withholding obligation does not require the purchaser to register for GST.
The notice from the supplier (the seller) should include:
- the name and Australian Business Number (ABN) of the supplier;
- GST branch number (if applicable);
- the amount the purchaser must pay to the ATO (rounded down to the nearest dollar);
- the date by which the purchaser must pay the withholding amount to the ATO;
- The GST-inclusive contract price (plus the GST inclusive market value of any non-monetary consideration).
The supplier must supply the notice on or before the time of making a supply, usually at time of settlement. If there is more than one supplier – the suppliers should notify the purchaser of each supplier’s share of the GST withholding amount. If the purchaser does not receive any notification, the purchaser may allocate equal shares to the suppliers.
If the required information changes after the supplier has issued the notice, the purchaser should be supplied with a new notice.
What Purchasers Should Do
The ATO does not retrospectively penalise purchasers who have acted reasonably, and where the supplier has not satisfied notification obligations correctly. The following actions are considered by the ATO to be reasonable steps taken by a purchaser:
- Review the sale contract and supplier notification to ensure whether the purchaser is required to withhold GST or not;
- Make sure that the sales contract and GST withholding notification contain the necessary above-mentioned information;
- The purchaser does not need to search for further information, but the purchaser is obligated to consider all information in relation to the sale;
- When the purchaser has considered all the necessary information, determine whether GST should be withheld;
- The purchaser can contact the ATO if all reasonable steps have been taken and the supplier notification not to withhold GST has been relied upon, but the purchaser still has some concern about the supplier’s notification.
If the purchaser knows that the supplier is registered for GST and is selling new residential premises not previously sold, the purchaser should withhold and pay the required GST amount to the ATO. Otherwise, the ATO may treat this action as unreasonable and apply a penalty.