Just as we get settled into new rules surrounding Foreign Ownership surcharges, the government is applying new GST withholding rules for residential premises and land.
These new rules apply to specific real estate types, namely ‘new residential premises’ or ‘potential residential land’, such as land that has been newly subdivided.
The reason we are drawing this to everybody’s attention is that not only are there exceptions to these withholding rules, but it is the buyer / purchaser and not the seller or developer who needs to pay or “withhold” the GST from the sale.
With the changes taking effect from July 1, 2018, now is the time to pause and review the new responsibilities because ALL parties to a transaction are affected, including real estate agents and conveyancers.
What transactions are affected by the new GST withholding rules for residential premises and land?
As mentioned above, these new GST withholding rules apply to sales of residential premises and land that is potentially residential in nature.
For example, newly subdivided land would be deemed to be potential residential land, and would fall under these new provisions.
However, there are exceptions to these new GST withholding requirements.
Some of the main exceptions include:
- the sale of commercial residential premises
- the sale of premises created from substantial renovation
- the sale of subdivided land containing a building used for commercial purposes
- the acquisition or premises where the purchase is for a ‘creditable purpose’
As you can see, with the shift in responsibilities and the raft of exceptions, it is crucial that all parties pay close attention to these changes to avoid penalties.
How the new GST withholding rules for residential land and premises affect you
While our team has created a page with a detailed summary for all parties, GST withholding for vendors / developers, here are the main points.
Purchasers: Purchasers are affected the least by these changes, provided their conveyancers ensure GST payments are submitted directly to the ATO at settlement and that they have notified the ATO of the impending payment before the settlement date.
Vendors: It is the vendor who risks penalties if they fail to notify buyers about their responsibility to pay the GST component of a sale directly to the ATO upon settlement. The notice must include the vendor’s name, ABN, GST amount, and the payment date. They will then be entitled to receive a credit in their next BAS for the GST withheld. Typically, this will be 10% of the sale price or 7% if a margin scheme applies.
Real estate agents: While the preparation of a contract of sale where GST applies will remain the same, you should advise vendors who are unsure how to complete the GST questions in the contract of sale to seek advice from their accountant. We believe REISA will soon release an updated contract of sale to reflect the GST withholding requirement, the Auctioneers and Appraisers template contract has already been updated.
Conveyancers: The Eckermann Conveyancers team already has systems and protocols in place to deal with these changes. In summary, conveyancers will need to be mindful of the new requirements where GST is applicable and guide vendors to seek advice from accountants and notifiy purchasers about their obligation to withhold GST or, when acting for buyers, ensure the GST component of the sale price is withheld and paid directly to the ATO.
As with all regulations, taxes, and payments relating to real estate, attention to detail is key, which is why choosing experienced professionals is so important for avoiding fines and delays.