Understanding the GST Withholding Measure
Since 1 July 2018, the way GST is paid at settlement has changed for new residential property and land purchases. Both buyers and sellers are required to comply with the notification and withholding requirements in relation to GST.
The change is intended to improve the integrity of the GST system and recoup millions in tax revenue.
Notification Requirements
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 Withholding Notification usually forms part of the contract and is a written notice which must include if the buyer is required to withhold GST and, if so, when the GST payment is required.
When it comes to vacant land (officially called ‘potential residential vacant land’ under the GST Withholding measure), this is land that is zoned or permitted to be used for residential purposes. In the case of these properties, the above Withholding Notification process also applies.
How much will GST be withheld?
How do you know if GST applies to your settlement?
Many residential settlements will not be affected by the new measure. Only new builds and vacant land are impacted. Also, the new measure does not involve extra GST costs, simply a change in who it is paid to and how it is paid.
If you are a seller and have questions about GST liability on a sale, we recommend that 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
- hospitals
- potential residential land transactions between GST registered businesses
- industrial or farmland zoning prevents residential development
How does this impact buyers?
If the Withholding Notification from the seller states that withholding does apply, the buyer (represented by their conveyancer) must follow 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 or their conveyancer.
How does the GST get paid?
When paying the ATO, on or before the day of settlement, payment is typically made via econveyancing. The buyer’s conveyancer will facilitate this. Other payment methods are also available.
Penalties
There will be penalties for both sellers and buyers when it comes to required notice and failure to make the required GST payment.
Fines can 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.
No Hidden Fees
Property conveyancing is not a ‘one size fits all’ process. We customise our approach to meet your personal needs, depending on what your settlement involves.
We will provide you with a tailored conveyancing costs quote based on the services you require for your commercial or residential property conveyancing transaction. With us, you only pay for the services you truly need.
To make sure your quote is accurate and to discover if we are a good fit for you, call for a competitive conveyancing quote.
