The new GST withholding law commences on 1 July 2018. We are fielding a number of commonly asked questions concerning the operation and application of the new law. Here are some commonly asked client questions and our responses. If you need any assistance, please do not hesitate to contact us.
1. When does the GST withholding law start?
1 July 2018 (applies to contracts entered into after 1 July 2018).
2. What type of contracts does the withholding requirement apply to?
Contracts for new residential premises being:
- New apartments;
- Newly subdivided land lots; and
- House & and land packages sold under single contract.
(Also applies to long term leases, 50 years+ of new residential premises.)
3. What are the withholding obligations for contracts formed before 1 July 2018?
- If the contract was formed before 1 July 2018 and settles before 1 July 2020, GST withholding is not required → the seller pays GST in the normal way; and
- If the contract was formed before 1 July 2018 and settles after 30 June 2020, → the buyer must withhold GST.
4. What is the GST withholding amount?
- If margin scheme does not apply → 1/11th of the contract price; or
- If margin scheme applies → 7% of the contract price.
5. What is included in the contract price?
Generally the contract price includes the total of:
- The base purchase price;
- The cost of any variations; and
- The cost of any optional extras.
Standard adjustments to the purchase price on account of rates, land tax and so on do not need to be taken into account.
6. Who has to withhold the GST?
The buyer.
7. What if there are multiple buyers?
If buying as tenants in common, each buyer will need to withhold GST in proportion to their interests.
If buying as joint tenants, then the buyers are treated as a single recipient of the supply and withhold GST as though they are a single entity.
8. How does the buyer know what GST amount to withhold?
The seller must give the buyer a notice before settlement of the contract of the following:
- Whether GST withholding applies;
- If GST withholding applies:
- GST withholding amount;
- seller’s name and ABN;
- that the GST withholding amount must be paid on the settlement date; and
- if non-monetary consideration is paid, the GST inclusive market value of the consideration.
9. When does the GST withholding amount need to be paid?
The buyer must pay the withholding amount immediately after settlement (on the same day as settlement if possible).
Note: HWL Ebsworth will include provisions in contracts that the cheque for GST withholding is collected by the seller at settlement and paid to the ATO.
10. What does the buyer need to do?
On or before the date of settlement, the buyer is required to notify the ATO of the withholding amount. The notice must include:
- Details of the buyer and seller; and
- Details of the transaction including the settlement date and total withholding payment.
This will be done by way of 2 separate notices.
Under the HWLE arrangements, these notices will be given to the seller at settlement. The seller will then use them to pay the GST withholding amount to the ATO.
11. Does the seller get a credit for the GST withheld and paid?
The GST withheld and paid will be credited to the seller when the seller submits its BAS and reports GST.
12. What happens if the buyer does not comply?
If the buyer fails to comply and the GST withholding amount is not withheld, the seller must pay GST in the normal way.
13. Are there penalties for failing to comply?
Yes.
For the seller → for failing to provide notification (under point 8 above), up to $105,000.00 per offence.
For the buyer → for failing to withhold, penalty equal to the withholding amount.
14. What if the GST withholding obligations do not apply?
The seller of used residential property must give the buyer a notice that there are no GST withholding obligations.
This article was written by Jason Warat, Partner.
Jason Warat
P: +61 7 3169 4713
E: jwarat@hwle.com.au