Since the new GST withholding changes started on 1 July, DSL Law has been inundated with questions from agents, sellers and buyers.
We thought it would be useful to share some of the most common questions we are receiving, and the answers to these questions. We have also compiled a list of our ‘Top Five Tips’ related to GST Withholding.
Of course, if you have any specific queries, please feel free to contact us. We’d love to hear from you.
The new system means that buyers (rather than sellers) are obliged to collect and remit GST on new residential premises and potential residential premises to the ATO. Although settlements will not be conditional upon payment of GST, the practical reality is that settlement will not happen unless sellers are satisfied that the GST will be paid. In recognition of this, the new REIQ contract provides a reversal of the payment obligations. That is, the seller will collect a bank cheque for GST on settlement and has a contractual obligation to remit it to the ATO.
The ATO describe the process as follows:
Understandably, this gives rise to quite a few questions. Some of the questions we have been receiving are set out below.
Common Questions and Answers
|Hasn’t that withholding thing been in place for ages? You know, the one with foreign people and capital gains?||The new GST Withholding regime is different to the CGT Withholding regime. The ATO has passed on the responsibility for collecting two separate categories of tax to the participants of the property industry.
GST Withholding applies to new residential premises or potential residential land (with some limited exceptions), while CGT withholding applies where the purchase price is greater than $750k and a clearance certificate has not been provided.
|The GST has been around forever. Why is this happening now?||The formal response from the ATO is that the regime is to ‘improve the integrity of the GST’.
What that really means is that some property developers not paying the GST they collected from buyers. The ATO estimate that the impact of this in recent years is several billion dollars!
|Does it make a difference to how agents complete contracts?||Yes, completing contracts is different, and it is important it is done right.
Queensland REIQ contacts now have a ‘GST Withholding’ section.
To complete that section, agents will need to know:
· If the buyer registered for GST, (which can be identified by searching the Australian Business Register: www.abr.business.gov.au/) and if the buyer is acquiring the land for a creditable purpose (which will normally be the case if they are purchasing for a purpose related to their business); and
· If the land is ‘new residential premises or ‘potential new residential land’
|To be clear, when does the GST Withholding regime apply?||Parts of the new regime apply to all residential premises, but GST generally only needs to be withheld where the buyer is the recipient of a taxable supply of new residential premises or potential residential land.
The regime will not apply to
· transactions where the seller is not registered, or required to be registered, for GST (because a taxable supply will not be made)
· Contracts entered into before 1 July 2018 (as long as settlement occurs before 1 July 2020)
· Property that the buyer is purchasing for a creditable purposes (where they are registered for GST)
|What are ‘new residential premises’ and ‘potential residential land’?
|For the purpose of the GST withholding regime, ‘new residential premises’ are properties that have not previously been sold as residential premises or where new buildings replace demolished buildings on the same land.
Residential premises will generally not be ‘new residential premises’ if they have been used as a rental for five years.
Potential residential land is land that:
· is able to be use for residential purposes under the planning laws (which could be broader than just an ordinary dwelling intended for permanent occupation); and
· does not contain any existing buildings that are residential premises.
The property must also be included in a property subdivision plan and not include any buildings that are used for commercial premises.
|What is a creditable purpose?||A creditable purpose essentially the purpose of making a taxable supply. In other words, it is a business purposes.
An example provided in the REIQ contract is the purchase of land by a building contractor, who is registered for GST, for the purposes of building a house on the land and selling it in the ordinary course of his or her business.
|If the regime applies, what exactly do sellers have to do now?||Sellers now need to:
1. Notify the buyer in writing (including the name, ABN, amount, timing and value).
2. Lodge the BAS when due and once that BAS is processed the withheld amount paid to the ATO is available as a credit against the BAS net amount.
In addition, the REIQ contracts in Queensland place the onus of paying the GST Withholding amount on the Seller. Therefore, the Seller will need to remit GST as soon as practicable following settlement.
|If the regime applies, what exactly do buyers have to do now?||Buyers now need to lodge forms and remit GST as follows:
1. Complete the GST Property Settlement Withholding Notification form: https://www.ato.gov.au/gstpropertysettlementform1/. This will enable them to obtain a unique Payment Reference Number (PRN) and Lodgement Reference Number (LRN).
2. Complete the GST Property Settlement Date Confirmation https://www.ato.gov.au/gstpropertysettlementform2/
3. Pay the GST to the ATO on or before settlement.
There is also a requirement to give these forms (and evidence they have been lodged) to the seller.
DSL believes in making it easy and will complete these forms for our buyers, ensure payment is drawn in accordance with the contract and provide all applicable evidence to sellers.
NB: Payment time-frames may be slightly different if the contract is an instalment.
|What amount is being withheld?||That will include the withholding amount which is generally 1/11th of the contract price (or 7% if the margin scheme is applied). Even though the actual margin scheme amount may be different, the amount of 7% is to be withheld.
If any consideration is not monetary, it still needs to be taken into account.
Top 5 Tips on the GST Withholding Regime
- To find out if a buyer is registered for GST, head to abr.business.gov.au/
- GST is calculated on the adjusted settlement amount – not just the purchase price
- In case sellers, are concerned, it is important to note that the amount being withheld for margin scheme transactions is an estimate.
- The new scheme doesn’t change GST calculation obligations or registration requirements.
- Beware the instalment contract!! The obligation to withhold and remit the total GST will crystallise on payment of the first instalment (regardless of the amount of the instalment).