GST: New Residential Premises and Residential Land settlements

By Ian Matthews
Taxation Director
06 July 2018

From 1 July 2018, the GST legislation imposes an obligation on purchasers for the withholding of GST on proceeds paid at settlement for the taxable supply of new residential premises and certain residential land. This includes where the relevant property is supplied by way of sale or long-term lease.

Any amount required to be withheld at or before settlement will need to be paid to the Australian Taxation Office (ATO) by the purchaser. The vendor will be entitled to credit for the amount paid to the ATO by the purchaser when the vendor lodges its next business activity statement (BAS).

Both purchasers and vendors of new residential premises and certain residential land need to ensure that their legal advisers have correctly considered the amended rules in any property settlement, otherwise they will be exposed to potential penalties which, for a purchaser, can be up to the amount failed to be withheld.

On 26 April 2018, the ATO released draft Law Companion Ruling 2018/D1 which describes how the ATO will administer the new withholding regime post 1 July 2018.  When finalised the draft ruling will become a public ruling.

Critical points from the ruling include:

  • The date from which the new measures will apply, including transitional measures for property contracts physically exchanged pre-1 July 2018 but settled after this date.
  • The types of property for which the withholding rules apply, including:
    • New residential premises, as defined
    • Potential residential land, property included in a property subdivision plan or property not containing a building in use for a commercial purpose (collectively potential residential land) AND the purchaser is not registered for GST or does not purchase the property for a creditable purpose.
  • The amount the purchaser, if required to withhold and pay to the ATO which could be:
    • 1/11th of the contract price or price.
    • 7% of the contract price or price for sales under the margin scheme.
    • Special rules for supplies when only partly new residential premises or potential residential land.
    • Special rules for multiple purchasers (not joint tenants).
  • Notification requirements that vendors are required to provide purchasers.
  • Penalties that may apply to vendors and purchasers for non-compliance with the post 1 July 2018 withholding regime.