Are You Aware Of Changes To GST Laws On Property Transactions?
Are you buying a new residential premises or potential residential land subdivisions?
On 29 March 2018 GST laws in relation property transactions were amended. The new laws require the purchasers of new residential premises or subdivision of potential residential land to withhold the GST due and pay this directly to the Australian Taxation Office (ATO). The payment must be made on or before settlement.
1. Why have the laws changed?
Some developers, who have made sales of such properties, were failing to transfer the GST collected from the purchasers to the ATO. The ATO wanted to ensure that taxpayers would correctly record their GST liabilities relating to property especially to new residential premises. This amendment intended to remove this abuse.
2. Key Features of the New GST Withholding Regime
This new regime will be utilising new and existing withholding tax provisions in the Taxation Administration Act 1953 (Cth) and shall be imposing obligations both on the purchasers and vendors. The main change creates a shift in the way GST is collected for residential property transactions.
a. GST Withholding on new residential property
The new obligation imposed on the purchaser to withhold GST and remit this to the ATO is not an additional payment on top of the contract price. The amount of GST has not changed. The change is regarding who is responsible to remit this payment to the ATO. The agreed contract price includes this amount and GST is taken from the purchase contract price as agreed to be paid by the purchaser to the supplier. Suppliers must always display prices for properties inclusive of GST, hence, the advertised price of residential or potential residential land is GST-inclusive.
b. Suppliers’ Obligations
Under the new regime, suppliers will need to ensure that they adhere to the requirement of providing written notice to the purchasers. This notification must include whether the purchasers are required to withhold an amount for GST, what that amount is and when this is due to be paid to the ATO. Further details as to how this amount is calculated may be accessed at https://www.ato.gov.au/Business/GST/In-detail/Your-industry/Property/GST-at-settlement/. The onus is on the supplier to give the correct information to the purchasers. The notice may be included in the sales contract or in a separate written agreement. Penalties, giving rise to a strict liability offence with a maximum liability of 100 penalty units equalling to $21,000 per infringement for an individual and five times that amount for companies, may apply should the supplier fail in performing these duties.
c. Purchasers’ Obligations
Purchasers will need to ensure arrangements are made to remit the withheld GST to the ATO. Purchasers have two online notification forms to lodge. For further details about these forms visit https://www.ato.gov.au/Business/GST/In-detail/Your-industry/Property/GST-at-settlement/?page=5#How_the_measure_will_work_from_1_July_2018. It is important to note that the purchaser is obliged to lodge both these forms even if the supplier failed to provide a written notification.
d. Pre-1 July 2018 Contracts
The amendment will take effect on 1 July 2018; however, it includes a transitional period. Sale contracts entered into before 1 July 2018 are excluded from the provisions of this amended legislation so long as these transactions are settled before 1 July 2020. This transitional arrangement provides certainty for previously signed sale contracts.
There are some exclusions to the new legal amendments. Some property transactions are excluded from this new law. Exclusions include commercial residential premises such as hotels and residential premises that have undergone substantial renovations to become new. The full list and details of exclusions may be accessed at https://www.ato.gov.au/Business/GST/In-detail/Your-industry/Property/GST-at-settlement/?page=3#Exclusions.
3. Contact Aperion Law
There are material implications should one become non-compliant with these new requirements, hence, suppliers, purchasers, advisors, conveyancers and agents need to be fully aware of their new obligations. The content of this article is only an overview of the changes introduced. Aperion Law's lawyers in Melbourne and Sydney can help you with these and other issues. We provide free 30-minute initial consultations to help understand your needs. Please contact us when you are ready, for specialist advice: https://www.aperionlaw.com.au/#find-us