GST Withholding Tax in Conveyancing Property Purchases and Sales?

What is GST Withholding on New Property Purchases?

The payment of GST on the purchase of real property provisions of the Taxation Administration Act 1953 came in force from 1 July 2018 and applies to all applicable transactions which settle after that date.

What does GST withholding mean for Vendors and Purchasers of Property?

If you are buying a new house or property, as the purchaser, you are required to withhold an amount equivalent to the GST portion of the sale, from the Vendor at settlement and pay this to the Australian Taxation Office (ATO).

The GST withholding portion only applies to the purchase of new residential premises or potential residential land that have not been sold before. The amount to be withheld is 1/11th of the purchase price, or if the margin scheme applies 7% of the purchase price.

What properties are subject to GST withholding when they are sold?

GST withholding applies to all of the following properties:

• New residential premises such as apartments, house and land packages and off-the-plan purchases;

• Potential residential land. This includes land being sold that has recently been subdivided and land that could be used to build new residential premises;

• Residential premises that are 5 years or less in age and ae being sold for the first time;

• Premises that are new as a result of substantial renovations.

What properties are exempt from GST withholding when they are sold?

Properties that are exempt from GST withholding at settlement include:

• Commercial properties;

• Vacant residential land sold to a business that is registered for GST and for the purpose of the land being developed

• Potential residential land that contains a commercial building in use;
  
• Residential premises that are no longer new because they were sold previously (or subject to a long-term lease) or have been continuously and solely rented for more than 5 years

For more information about the GST withholding scheme and requirements, click here.

How does GST Withholding Work?

Vendor’s must notify the purchaser or their legal representative, whether they are required to withhold the GST amount on settlement. This is done by completing a GST Withholding Notice. A GST Withholding Notice will advise the purchaser of whether the Vendor is required to pay GST on the transaction, therefore giving rise to the need to withhold GST, the amount to be withheld at settlement and the means of payment.

If the Vendor is not required to pay GST, and they send the appropriate notification to the purchaser, the purchaser does then not need to withhold any amounts at settlement for GST and is exempt from their obligations.

However, if the Vendor does not provide the purchaser with the correct GST Withholding Notice, the purchaser must withhold an amount at settlement equivalent to the relevant GST portion of the sale and pay this to the ATO, regardless of whether the Vendor is required to pay GST on the sale or not.

I am purchasing a new property. How do I know if GST needs to be withheld or not?

If you are purchasing property, the team at Wollerman Shacklock Lawyers will help you with this as part of the conveyancing process. When a GST withholding obligation exists, the purchaser is required to complete a GST Property Settlement Withholding Notification Form prior to settlement at which time they will receive a payment reference number, and a payment slip with details of how payment is to be made. Upon settlement, the purchaser must ensure that the correct amount is withheld and paid to the ATO. The good news it that the team at Wollerman Shacklock Lawyers handle all of this for you, so you do not need to worry!

What are the penalties for failing to comply with your obligations as a Purchaser?

The penalty for a purchaser failing to withhold the required GST amount is an administrative penalty, or fine, equal to the amount of GST that was required to be withheld. In other words, if you do not withhold the GST amount from the Vendor at settlement, you as the Purchaser can be liable to pay the GST amount on the Vendor’s behalf, even though this is not your debt! It can be quite a lot of money.

Penalties can also apply to purchasers if a Vendor provides a GST withholding notice stating that no funds are to be withheld but the property is a property subject to the GST withholding scheme and the vendor is registered for GST. The onus is on the purchaser to ensure the GST is withheld correctly.

Purchasers will not be penalised if they had reasonable grounds to believe that GST was not required to be withheld at settlement or an honest mistake was made. However, it is easier to ensure that the right checks and notifications are done before settlement and the appropriate GST amount is withheld and remitted to the ATO if required, than having the stress of having to provide evidence after settlement to avoid penalty!

What are the penalties for failing to comply with your obligations as a Vendor?

The penalty for a Vendor failing to give the appropriate GST withholding notice is a fine of $21,000. An administrative penalty may also be imposed.

If you fail to give the purchaser the required notice, the purchaser must withhold the GST portion and remit this to the ATO. So, if you were not liable to pay GST on the transaction, GST can still be withheld from the sale proceeds at settlement. You will then be required to correspond with the ATO to get this amount back. This is not a quick or easy process.

Whether you are a purchaser or a vendor, it is imperative to remember that the ATO uses data matching technology with other state departments including the Land Titles Office and the State Revenue Office to identify property purchases and sales. From that they can identify if a sale was transacted that should have had GST withheld at settlement but didn’t. This is not a risk worth taking!

What else do I need to know about GST with holding with property purchases?

The conveyancing process can be a stressful time and there can be a lot of paperwork to complete. The GST withholding requirement is often confused with the taxation withholding requirements for foreign residents. The foreign resident withholding is a separate withholding requirement where purchasers must withhold 15% of the sale price at settlement and pay this amount to the ATO if the seller is a foreign resident. For more information about foreign resident withholding tax, click here. In some cases, a purchaser may have to withhold both!

What can you do to ensure GST is dealt with correctly for your sale or purchase?

If you are a Vendor or a purchaser, engaging an experienced conveyancing lawyer to assist with your conveyancing ensures that your conveyancing process is undertaken accurately and correctly.

We ensure the required GST notices are completed and sent to the purchaser if you are selling the property, or that the Vendor provides the GST withholding notice to us if you are buying the property. We ensure that if the seller does not provide a properly completed GST withholding notice, that the GST amount relevant to the sale is withheld so that you are not held personally liable to pay their liability. We handle all the forms and notices, so you do not need to worry!

If you need assistance with your conveyance, please contact our office.