Russell Kelly & Associates · Norwest NSW
GST payments at settlement
GST Withholding on Property Settlements
Special GST withholding rules apply to certain sales of new residential premises and potential residential land in Australia.
Where the rules apply, the purchaser is required to withhold a specified amount from the purchase price and pay that amount directly to the Australian Taxation Office (ATO), rather than paying the entire settlement amount to the vendor.
When Does GST Withholding Apply?
GST withholding can apply to taxable supplies of:
- new residential premises; and
- potential residential land where the relevant requirements are satisfied.
The rules commonly arise in property development transactions, including the sale of newly constructed homes, apartments and certain vacant land.
They do not generally apply to the ordinary sale of existing residential premises.
How Much Does the Purchaser Withhold?
The amount that must be withheld depends upon the GST treatment of the transaction.
For transactions to which the withholding rules apply, the amount is generally:
- 1/11 of the contract price for a fully taxable supply; or
- 7% of the contract price where the margin scheme applies.
Different calculations can apply in particular circumstances, including certain transactions between associates or transactions involving only a partly taxable supply.
The amount should therefore be determined from the particular contract and GST treatment of the transaction rather than assuming that a fixed percentage applies to every property sale.
Vendor Notification Requirements
A vendor of residential premises or potential residential land generally has an obligation to provide the purchaser with written notification concerning GST withholding before settlement.
The notice should state whether the purchaser is required to make a withholding payment and, where withholding is required, provide the information necessary for the purchaser to comply with the ATO requirements.
This information is commonly incorporated into or provided in connection with the contract for sale.
Purchaser Obligations
Where GST withholding applies, the purchaser is responsible for ensuring that the required amount is paid to the ATO.
The appropriate ATO property settlement withholding notifications must also be lodged so that the payment can be correctly attributed to the transaction and vendor.
In an electronic property settlement, the payment can generally be dealt with as part of the settlement process.
GST Withholding and the Margin Scheme
The GST margin scheme may apply to some taxable property transactions where the relevant requirements are satisfied.
Where a taxable sale is made under the margin scheme and the GST withholding provisions apply, the purchaser generally withholds 7% of the contract price rather than 1/11 of the contract price.
The margin scheme has separate eligibility and documentation requirements and should not be assumed to apply merely because the parties prefer that method of calculating GST.
Does Withholding Change the Vendor’s GST Liability?
The GST withholding system does not replace the vendor’s ordinary GST reporting obligations.
The vendor remains responsible for reporting the transaction through the applicable business activity statement and determining the actual GST liability arising from the sale.
The amount paid to the ATO by the purchaser is credited against the vendor’s GST obligations in accordance with the applicable taxation rules.
GST and Existing Residential Property
The GST withholding regime does not generally apply to an ordinary sale of existing residential premises.
However, GST treatment can become more complicated where property is new, substantially renovated, developed for sale, commercial in nature or sold as part of an enterprise.
Appropriate taxation advice should be obtained where the GST treatment of a property transaction is uncertain. See the ATO’s current GST at settlement guidance.
GST Withholding and Property Settlement
GST withholding requirements should be identified before settlement so that the appropriate notices, ATO forms and settlement arrangements can be prepared.
Russell Kelly & Associates can assist with the conveyancing and settlement requirements associated with a property transaction where GST withholding applies.
Learn more about PEXA and electronic property settlement.
Learn more about our Property Law and Conveyancing services.
Speak to Russell Kelly & Associates
If you are buying or selling property where GST may apply, it is important that the GST treatment and settlement requirements are identified before completion.
This information is general in nature and is not taxation advice. GST treatment depends upon the particular transaction and circumstances. Appropriate legal and taxation advice should be obtained where required.