GST Obligations On New Residential Property Transactions

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From 1 July 2018, purchasers of new residential premises or new residential subdivisions will remit the GST on or before settlement of the property. The amount that is required to be paid to the Commissioner is 1/11th of the sale price. The amount remitted to the ATO will be completed on or before the settlement of the property.

Margin scheme carve-out

A special rule applies for the sale of new residential premises under the margin scheme. A purchaser of new residential premises under the margin scheme will only be required to remit 7% of the purchase price to the ATO. The reduced withholding payment to the ATO is due to the reduced net GST payable which usually applies to the margin scheme. Under the margin scheme, the GST on a sale of new residential premises is reduced by the GST on the original purchase of land.
The Commissioner of Taxation has the option to vary the withholding amount from 7%, but cannot go higher than 9% when the margin scheme is applied.

New residential premises

The term new residential premises is defined by the GST Act where the premises has not previously been sold as a residential premises.
Even though a property which has been substantially renovated will be considered new residential premises for GST purposes, it is excluded from this withholding regime.
Substantial renovations means a significant change or update to all, or substantially all of the premises. However, renovations do not need to include replacement of foundations or external walls. Therefore, it can be difficult for the transacting parties to know whether substantial renovations have occur as per the GST Act. To alleviate these hurdles, substantial renovations have been specifically carved out.
Commercial residential premises are also excluded from this withholding regime.

Notifications to purchaser

Any person supplying residential premises needs to provide necessary details to the purchaser at least 14 days before the initial supply is made. This occurs irrespective of whether the premises is new or not. The onus is on the vendor to ensure any amounts are lodged and paid when necessary. The following matters must be included in the notice to the purchaser:

• the name and ABN of the entity that made the supply
• the amount that the purchaser will be required to pay the Commissioner (including $0)
• when the purchaser is required to pay that amount to the Commissioner
• where some or all of the consideration is not expressed as an amount of money, the GST inclusive market value of the consideration that will not be expressed as an amount of money, and
• such other matters as are specified in the regulations.
The maximum penalty for non-compliance for a developer is 100 penalty units, which currently totals $21,000.

Client application

GST will be payable on or before the day that consideration for the supply is first provided. This would normally exclude a deposit. Going forward, there is an incentive for a developer to structure contracts in order to avoid cash-flow disadvantages.
Transitional rules apply for contracts that were entered into before 1 July 2018. For these contracts, settlement must take place within two years of the commencement of the legislation, being 1 July 2020. Any supply of new residential premises that does not comply with the transitional rules will require withholding to apply.

Case Study Example 1. Withholding at settlement

On 3 December 2018, Rick enters into a contract for the purchase of a new apartment with MortimerHomeCo for $700,000.

The contract of sale included the required notice providing relevant details to enable Rick to withhold and remit the correct amount of GST payable to the ATO at settlement.

Settlement occurs on 6 June 2019. Rick’s conveyancer advises Rick that he will be required to make a payment to the ATO on or before 6 June 2019. Rick’s conveyancer makes a payment as his agent to the ATO at settlement of $63,636 (being the GST component of the purchase).

Because Rick has paid $63,636 to the ATO, he does not have to provide this amount to MortimerHomeCo, even though the contract price states that the consideration includes the $63,636.

MortimerHomeCo receives a credit for this amount in their June BAS, and does not then have to make a payment of the amount when paying their net amount for the period.

Case Study Example 2. Withholding on land where premises not built

Alison buys land in a new master-planned development. The vendor selling the land has also indicated the purchase of the land is subject to the construction of a new home built on that land by an agreed developer.

Alison agrees to this condition and the vendor prepares a land contract, and a building contract is drawn up separately. Alison settles on the land first, withholds the GST on the contract price of the land and remits that to the ATO at settlement.

As the contract for the construction of the house is for the supply of goods and services and not land, the withholding does not extend to the supplies under this contract. GST on those supplies is paid in the usual way.

Case Study Example 3. Contract paid by installments

Craig enters into a contract for a penthouse apartment with JeanConstructionCo, a developer, for $10m on 24 July 2019.

The parties agreed to pay a 10% deposit on exchange of contracts, and then two equal instalments of $4.5m each. The first instalment is due on 24 July 2020, and the second is due on 1 January 2021.

Craig is required to make a payment to the ATO of $909,090 on the first instalment on 24 July 2020. Craig notifies the ATO five days before the payment is due, and then pays this amount on 24 July 2020. He then pays the balance of the first instalment payment to JeanConstructionCo.

Because Craig has paid the amount directly to the ATO, he is discharged of any obligation to pay the balance of the first instalment to JeanContructionCo at the time the first payment is made.

Craig then pays the full second instalment of $4.5m on 1 January 2021.

This document contains general advice only and is prepared without taking into account your particular objectives, financial circumstances and needs.  The information provided is not a substitute for legal, tax and financial product advice.  Before making any decision based on this information, you should speak to a licensed financial advisor who should assess its relevance to your individual circumstances.  While The Field Group believes the information is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk.  The information provided in this bulletin is not considered financial product advice for the purposes of the corporations Act 2001.

About the author

The Field Group is composed of experts in the fields of Xero accounting, personal tax, self-managed superannuation, audit services, business services, bookkeeping, bench marking, business structuring and ATO Compliance. Based in Melbourne, The Field Group are also able to work with clients all over Australia and are the market leader for accounting services in the Ringwood, Croydon, Chirnside Park, Lilydale and general Melbourne eastern suburb region.

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