New homes and residential property has been subject to GST since the introduction of the tax in 2000. Generally with GST, if you are the seller, you are required to collect the GST portion of the sale and remit this to the Australian Taxation Office.
However this traditional collection method has been thrown out the window when it comes to the sale of new residential premises or potential residential land.
Since 1 July 2018, purchasers of a new residential premises or potential residential land may now be liable to withhold the GST portion from their purchase price and pay this directly to the ATO.
So, what is meant by `new residential premises or potential residential land’?
According to the ATO, a residential premises is considered new when any of the following apply:
- It has not previously been sold as a residential premises.
- It has been created through substantial renovations.
- A new building replaces a demolished building on the same land. Or,
- One of the properties mentioned above that
has been rented out for:
- Less than five years, or,
- More than five years but has been actively marketed for sale while it is rented.
Examples may include display homes, off the plan purchases and house/land packages.
Potential residential land is defined as ‘land that it is permitted to use for residential purposes, but that does not contain any buildings that are residential premises’. This essentially means vacant residential zoned land.
You’re selling a new residential premises/potential residential land. What do you need to do?
The supplier of the property is required to notify the purchaser, in writing, of their (the buyers) obligations to withhold the GST and provide information that includes the:
- Name and ABN of the suppliers.
- The amount of GST that the purchaser needs to withhold and pay to the ATO.
- When that amount needs to be paid.
The withholding amount will generally either be:
- 1/11th of the contract price.
- 7% of contract price (where the supplier is using the margin scheme). Or,
- If selling to a related party, the withholding amount is 10% of the GST exclusive market value of the property.
I am buying a new residential property. What do I need to do?
Along with withholding GST from the purchase price and paying this to the ATO, you will also need to lodge two forms with the ATO:
- Form 1: GST property settlement withholding notification online form
- Form 2: GST property settlement date confirmation online form
It is important that both the purchaser and seller are aware of these new rules and their obligations, as a failure to comply with these rules may attract penalties for both parties. If you’re not sure if this applies to you, you should get in contact with your tax agent.
Pro tip: As a seller, you should be mindful of the impact of the new withholding regime on your cash flow projections and mortgage repayment schedules.
Pro tip: As a purchaser, the ATO does not require you to be registered for GST to remit this payment.
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Author: Georgia Burgess