From 1 July, 2018, buyers of new residential premises or "potential residential
land" will be required to withhold an amount from the contract price for GST
and remit this directly to the ATO on or before settlement.
This might also apply to property by way of a long-term leases.
Generally the amounts to be withheld will be one-eleventh of the unadjusted
GST-inclusive contract price, however this amount can be 7% if a margin scheme
Why the change?
This change is attempting to fix tax evasion and non-reporting of GST revenue from some property transactions. Some developers/sellers, having collected GST from the buyers and were not forwarding this GST revenue on to the ATO.
The new rules do not apply to contracts entered into before 1 July 2018, as long as the transaction settles before 1 July 2020. This is not an additional payment on top of the contract price though. The GST withholding amount is taken from the purchase price in the contract. Practically, we expect your Conveyancers will arrange this as part of the settlement process.
Some property transactions are excluded from the new measure, such as:
- previously owned residential accommodation
- new residential premises created by "substantial renovations" (careful here)
- potential residential land included in a property subdivision plan that contains a building that is currently in use for a commercial purpose – for example, a factory or shop being operated in an area where local zoning permits mixed use
- commercial residential premises such as hotels, motels and boarding houses (probably not Airbnb)
- taxable supplies of potential residential land between GST registered businesses where the purchaser acquires the property for a creditable purpose.
Other types of property transactions are not included in the new measure as the ATO considers these to not be new residential premises or potential residential land. For example:
- sales of commercial premises, for example office units, factories and retail shops where land is zoned commercial use only
- industrial land or farm land where zoning prevents residential development