Are You Aware of Changes to GST at Settlement?
If you operate within the property industry, the new withholding regime is likely to impact you.
Changes to the ATO’s GST amount payable at Settlement came in to effect as of the 1st of July 2018.
These changes require the buyers of new residential land or new residential premises to withhold an amount from the total price of purchase and supply that amount to the ATO on the day of, or before settlement is reached.
This new regime will not only impact developers, or agents but also will also effect settlement lawyers as well as conveyancers and financers.
In order to provide certainty to a buyer, the seller (of property or premises) has to provide notification of whether the purchasing party is legally required to withhold an amount. Notification must also be given to the purchaser of the specific amount and when it is required to be paid.
How do the new rules apply?
These new rules pertain predominantly to the actions of suppliers (sellers), detailing new mandatory industry requirements regarding the sale or long-term leasing of new residential properties.
They will also apply to supplies of potential residential land that is included in a property subdivision plan and that does not contain any residential buildings or buildings being used for commercial purposes.
New residential premises that have been created as a result of substantial renovations will not be subject to the withholding requirement.
How will it work?
Where a seller makes a taxable supply of new residential premises or land, the buyer will be required to withhold 1/11th of the price and pay that amount to the ATO on or before the day on which any part of the consideration for the supply is first provided. This will usually be at settlement.
Where the buyer pays the withheld amount to the ATO, the seller will be entitled to a credit in its BAS equal to the amount paid by the buyer. This credit will then be offset against the GST liability on the sale of the property, which the seller is still required to report in its BAS.
The buyer must pay the withheld amount directly to the ATO.
If the buyer fails to withhold and pay the required amount to the ATO, the buyer will be liable to a penalty equal to the amount of the withholding obligation.
Settlement statements and the settlement process itself will need to be changed to cater for instances where the buyer makes payment of the GST amount directly to the ATO. Under these circumstances, sellers will need to consider how they can satisfy themselves that the buyer has paid the GST amount to the ATO before they proceed with settlement.
Contracts signed before 1 July 2018 will not be subject to the withholding requirement provided the consideration for the supply is first provided before 1 July 2020 (settlement occurs before 1 July 2020)