Paying GST @ Settlement
The way GST is paid at settlement is changing for new residential property and land purchases.
The changes come into effect from 1 July 2018.
The new measure means buyers and sellers will be required to comply with new notification and withholding requirements in relation to GST payable by sellers.
The intention of the change, announced by the government in the 2017-2018 Federal Budget, is to improve the integrity of the GST system and recoup millions in tax revenue.
From 1 July 2018, all contracts entered into for new residential homes and potential residential vacant land will require the seller to provide buyers with a Withholding Notification.
The written notice must include if the buyer is required to withhold GST and if so when the GST payment is required.
When it comes to potential residential vacant land, which is land that is zoned or permitted to be used for residential purposes, the above process also applies.
How will we know is GST applies to our settlement?
Many residential settlements will not be affected by the new measure. Also, the new measure will not involve extra GST costs, simply a change in who it is paid to and how it is paid.
If you have questions about GST liability on a sale, Strategic Property Conveyancing advises you contact your accountant.
In cases where GST is not applicable i.e. residential settlements between individuals, the seller will provide a Withholding Notice to the buyer stating the transaction is not taxable. No further again is required.
The following settlement transactions will be excluded from notification and withholding requirements;
- commercial premises
- extensively renovated new residential sites
- mixed-use zoning locations i.e. residential/commercial
- potential residential land transactions between GST registered businesses
- industrial or farmland zoning prevents residential development
How much will GST be withheld?
The withholding amount will be taken from the purchase contract price (price of the supply) the purchaser agreed to pay the supplier. Basically, the advertised or contract price is inclusive of GST.
How will the changes impact buyers?
If the Withholding Notification from the seller states that withholding does apply, the seller must be following these steps;
Lodge a Form 1 Withholding Notification via the ATO website after entering into the contract. After lodgement, a Payment Reference Number (PRN) and a Lodgement Reference Number (LRN) will be issued for payment purposes. Importantly, only one PRN and LRN will be issued per Form 1, even if there are multiple purchasers listed on the form.
Lodge a Form 2 via the ATO website on or before settlement. This step also includes a GST property settlement date confirmation form with PRN & LRN plus payment of the GST amount to the ATO. When the payment has been verified an email will be issued to the buyer.
- When paying the ATO, on or before the day of settlement, payment can be made via;
- Other electronic options
- Bank Cheque
- Other payment methods available on ato.gov.au
There will be a two-year transition period that will exclude contracts entered into before 1 July 2018, where payment (other than a deposit) is made before 1 July 2020.
There will be penalties for both sellers and buyers when it comes to required notice and failure to make the required GST payment.
Fines will be imposed for;
- Failure by the seller to provide the Withholding Notification to the buyer
- Failure by the seller to give the buyer the required Withholding Notification details
- Failure of the buyer to pay the withheld amount to the ATO. Importantly, buyers who have not received a notification from the seller may be expected to know about the GST withholding requirement e.g. when buying off the plan. In such cases, the buyer will still be required to lodge Form 1 & 2 online, withhold and pay the GST to the ATO.
The Strategic Property Conveyancing team are aware of the new requirements, deadlines and penalties. As always we are happy to answer client’s questions or direct you as needed. Feel free to contact us on 9271 1522.
What others say…
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Conveyancing agent Kyla was professional, knowledgeable and courteous. Thank you for making the process so easy. Kyla and staff are a credit to the industry.D & J Wong
Conveyancing agent Kyla took a lot of the stress out of the whole process. We trusted her judgement and knew was working in our best interest. Kyla is very good at what she does, we wouldn’t trust anyone else.S & I Canfora