New GST withholding rules for off the plan and new residential sales apply from 1 July 2018 unless the contract was signed before 1 July 2018 or the buyer is registered for GST and buys for a creditable purpose.
After 1 July 2018 any contracts signed for new residential property require buyers to withhold up to 1/11th of the contract price and pay to the ATO on settlement under new Commonwealth laws. If the sale is not subject to the margin scheme the amount is 1/11th of the GST inclusive contract price. If the margin scheme applies then the amount to withhold from proceeds is 7% of the GST inclusive contract price.
The developer or seller is entitled to a credit for the amount paid from the ATO on their tax assessment.
The supplier or developer of residential premises or land must notify a buyer in writing of whether or not the buyer is required to make a withholding and payment to the ATO under the new law. This means contracts need to be amended to include this notice from 1 July 2018.
Penalties apply for a seller failing to notify a buyer and for a buyer failing to withhold and pay the amount to the ATO.
This new tax law will affect the cashflow of sellers and developers and create additional administrative requirements, delays and costs for payments, reconciliations and credits to be processed and managed.
All land and residential contracts signed after 1 July 2018 must include a notice concerning the GST withholding and all settlements will also be impacted.
To make sure your interests are protected as a seller, developer or buyer, make sure you contact our experienced property and commercial Gold Coast lawyer Teresa Kearney to review and amend your contracts to avoid unnecessary penalties and unexpected costs.
Author: Teresa Kearney
Director: Ian Kennedy
Date: 11 June 2018