From 1 July 2018, purchasers of new residential premises will be required to withhold and remit GST to the ATO directly. This requirement has been introduced through the Treasury Laws Amendment (2018 Measures No. 1) Bill 2018 (Cth) announced as part of the 2017-2018 Federal Budget.
How do the new measures work?
Purchasers will have the obligation to withhold and pay to the ATO at settlement, either:
- 1/11th of the Contract Price; or
- 7% of the Contract Price (if a margin scheme applies)
Additionally, vendors will be under a disclosure obligation to provide purchasers with a GST withholding written notice (under the proposed s14-255 of Schedule 1 of the Taxation Administration Act 1953 (Cth)) at least 14 days before settlement.
When do the new measures apply?
The new measures apply to contracts entered after 1 July 2018. Contracts entered before 1 July 2018 and which settle before 1 July 2020 will be exempt from the new measures, provided that consideration (other than the deposit) is given.
What happens if these obligations are not complied with?
Failure of the vendor to provide written notice to the purchaser the vendor is a strict liability offence and attracts a 100 penalty unit fine for individuals, and a 500 penalty unit fine for corporations.
For the Purchaser, failure to withhold and remit the GST directly to the ATO attracts an administrative penalty equal to 100% of the amount of GST to be withheld, which will result in the Purchaser paying effectively 110% of the contract price.
What is the timing for payment of GST Withholding?
The purchaser must remit the GST directly to the ATO on or before the day consideration is first provided under agreement – this is usually the settlement date. If the purchaser prepares a bank cheque for the requisite amount payable to the ATO which is provided to the vendor at settlement, the purchaser’s obligation will also be considered discharged.
Vendor credit for GST Withholding
The vendor will be entitled to credit equal to the GST withholding amount that the purchaser remitted directly to the ATO.
Impact of the new measures
Purchasers must now be aware of their obligation to remit the withheld GST directly to the ATO, and vendors must also be aware of their disclosure obligation to provide written notice to the purchaser.
Property developers and financiers must also account for not receiving the GST portion of the purchase price at settlement.