Will you be compliant with the new residential property GST withholding and notification requirements? Don’t get caught out. Don’t incur a penalty.

From 1 July 2018, the new GST withholding regime applies to the supply of:

new residential premises,
new residential subdivisions
long term leases.

What is it?

Vendors are required to inform a purchaser whether or not the withholding obligations will apply. Therefore: any existing contracts should be reviewed in compliance with the new regime.

A vendor’s failure to give GST withholding notification is a strict liability offence which could attract penalties of up to $105,000 for a corporation, or $21,000 for individuals.

Regardless of this, the vendor’s failure to notify the purchaser does not waive the purchaser’s obligation of withholding.

Depending on the nature of the contract of sale, (i.e. sale on the margin scheme), the withholding rate of GST will differ. Then the purchaser must notify the ATO and remit the GST amount on or before settlement. If the purchaser fails to withhold and remit the GST amount to the ATO, the purchaser is liable for a penalty that is equivalent to the GST amount they were required to provide.

Currently the new withholding regime does not affect:

sales of existing residential properties,
sales of new or existing commercial properties,
ordinary business to business transactions, where both vendor and purchaser are registered for GST.

Transitional relief applies to all contracts entered into before 1 July 2018, provided that the purchase price is paid before 1 July 2020.

If you have off-the-plan contracts, you should consider any potential delays that could postpone the settlement beyond this transition period.

It is critical that all parties in applicable transactions are aware of their obligations under the new GST withholding regime and ensure the contract is drafted or revised in compliance with the regime. While the new regime is aimed to improve the GST compliance of property developers, it could also apply to many other types of transactions.

For more information, please contact our office to discuss how the new regime will affect your existing and future contracts. [email protected]