News

The new GST withholding obligations for buyers

28. June 2018

From 1 July 2018, purchasers of new residential property across Australia will need to withhold the GST component of the purchase price of their property and remit it directly to the ATO as part of the settlement process.

The changes introduce fairly onerous obligations on buyers of new property and new residential land to ensure that even if they are not notified, if there is GST payable on a purchase, they provide it to the ATO.

There are also very large penalties for failure to comply.

The changes have been introduced to capture GST payments from property developers directly as part of the sale process.

What do sellers need to do?

Sellers of all residential property will be required to provide a notice to prospective buyers telling them whether they will be purchasing new residential property, and whether or not they will need to withhold an amount for GST at settlement.  This means that not only property developers will be affected by the changes, but all sellers of residential property.

A failure to provide this notice can attract a penalty for the seller of up to $21,000.00 per occurrence, and failing to provide an accurate notice can attract the same penalty.

There are some obvious flow on effects for sellers that will have their GST withheld at settlement.  Cash flow will be impacted and where a mortgagee is involved, they will have to take less than the full purchase price at settlement.

What do buyers need to do?

What is onerous for buyers is that their obligation to withhold GST is not in any way effected if the seller fails to give a notice about the GST withholding obligation.

This means that if a notice is not given by the seller, buyers will need to make their own determination about whether the property is new residential property, and whether withholding is required.  A failure to withhold could result in a penalty of an amount equal to what the buyer was required to withhold (10% of the purchase price).

If a notice from the seller is provided about GST withholding, the buyer is entitled to rely on that notice, provided it is reasonable to do so (i.e. the buyer is not aware of any circumstances that might indicate they are required to withhold when the seller has told them they do not have to).

It also may not be easy to determine whether residential property is new or not: what if it has been rented for a number of years?  Is it an independent living unit in a retirement village?

New standard contracts will be issued prior to the changes coming into effect, so Real Estate Agents and sellers should be very aware of the new changes when entered into or negotiating contracts closer to 1 July.

Make sure you don’t get caught out!

If you have any questions about the changes, or would like assistance with your conveyance please contact Lauren Doktor at Miller Harris Lawyers.