New GST Withholding Regime
Beginning on the 1st of July 2018, a new GST withholding Regime will be in place. This new Regime requires purchasers of certain new residential premises or potential residential land to withhold an amount from the price of the sale for payment to the ATO directly. Furthermore, this Regime will also apply to long-term leases (50 years + of new residential premises).
Why was this Regime introduced?
This new GST Withholding Regime was introduced as a result of non-compliance by vendors who sold their properties for a price that included GST, yet they avoided paying the GST by dissolving their business before their next BAS lodgement. This is considered as a form of phoenixing and consequently, the Regime was announced at the May 2017 Federal Budget.
What do I have to do?
Vendors: Vendors will be required to assist their purchasers in complying with this new Regime. This involves the vendor notifying the purchaser in writing as to whether the purchaser has a withholding obligation before the sale is made. Furthermore, if the sale is subject to GST withholding, the vendor will also have to notify the purchaser of the amount that they are to withhold, the date this payment is due to the ATO, and any other relevant information.
- A failure by the vendor to notify the purchaser of the GST withholding is a strict liability offence.
- There may be a maximum fine imposed by the court of 100 penalty units for individuals ($21,000) or 500 penalty units ($105,000) for corporations.
- Alternatively, the ATO may impose an administrative penalty of 100 penalty units ($21,000).
Purchasers: The purchaser does not need to register for GST just because they have a withholding requirement. Instead, purchasers will simply need to deduct the GST amount from the total purchase price and pay the GST component directly to the ATO at settlement.
- A failure by the purchaser to withhold GST and remit it to the ATO will give rise to a penalty equal to the amount of the GST payable.
- However, this penalty may not apply if the purchaser has reasonably relied on a notification from the vendor, or if the purchaser has provided the vendor with a bank cheque for the GST withholding that is payable to the ATO.
How much to withhold?
A purchaser must withhold and pay to the ATO either:
- 1/11th of the contract price (for fully taxable sales); or
- 7% of the contract price (for margin scheme sales); or
- 10% of GST exclusive market value of the sale (for sales between associates for consideration less than GST inclusive market value).
When to pay the ATO?
The amount to be paid to the ATO is due on or before settlement.
If the contract is an instalment contract, the amount is due on the day the first instalment is due.
Pre-1 July 2018 Contracts
The new Regime will not affect contracts which were entered into prior to 1 July 2018 and settle before 1 July 2020. However, if the contract was formed prior to 1 July 2018 but is settled after 30 June 2020, the new regime applies and the purchaser must withhold GST.
★ Riverson Lawyers has used its best endeavours to ensure that material contained in this publication was correct at the time of publication. Riverson Lawyers gives no warranty and accepts no responsibility for the accuracy or completeness of information and Riverson Lawyers reserves the right to make changes without notice at any time in its absolute discretion.