Change to the GST for property purchases from 1 July 2018

From 1 July 2018, purchasers of new residential premises or potential residential land will be required to withhold an amount from the purchase price and pay that amount directly to the ATO (and not to the vendor) on or before settlement.

The property transactions impacted are taxable supplies (e.g. sales and supplies by way of long-term lease) of new residential premises or taxable supplies of potential residential land where the contract is entered into on or after 1 July 2018. The new rules have been introduced to prevent dodgy developers from failing to pay GST, however they will impact many purchasers and vendors and will add to the cost of property transactions.

The purchaser will typically be required to withhold and pay 1/11th of the contract price to the ATO, or 7% of the purchase price where the vendor has used the GST margin scheme. Payment to the ATO must be made on or before settlement.

Vendors must notify purchasers in writing as to whether GST withholding is required before settlement, including the amount required to be withheld and the required time of payment. Penalties will apply where notification is not made. The notification may be included in the contract or in a separate written agreement.

Failure by the purchaser to withhold the GST and remit it to the ATO can result in a penalty of 100% of the amount required to be withheld. The penalty will not apply if the purchaser has relied on a notification from the supplier, or if the purchaser has provided the supplier with a bank cheque for the GST withholding that is payable to the ATO.

Whilst the burden of the administration of the new requirements will mostly fall on solicitors and conveyancers, all purchasers and vendors need to be aware of the new rules.

Feel free to contact us if you have any questions on the above.