GST to be Paid on Settlement of New Residential Property

GST to be Paid on Settlement on New Residential Property

New legislation has recently been introduced into Parliament to alter the GST obligations for off the plan and new build residential contracts. Under the proposed legislation, a freehold or leasehold purchaser of non-exempt new residential property or potential residential property (e.g. residentially zoned vacant land) will be required to ensure that GST is paid to the Australian Tax Office.

The proposed legislation is in response to property developers deregistering for GST shortly after settling their developments to avoid paying GST on the sales. Accordingly, the onus is proposed to be shifted onto purchasers, to ensure that GST is paid.

The change will apply to contracts executed after 1 July 2018 or prior to 1 July 2018, where settlement occurs after 1 July 2020. It will not apply to commercial residential property (e.g. hotels), options to purchase new residential property or substantially renovated property that would otherwise fit into the definition of a “new” residential premises for GST purposes.

It is proposed that a purchaser withhold GST when any portion of the purchase price (excluding the deposit) is paid. The withholding must then be paid to the ATO on or before the day of supply (i.e. settlement). The purchaser can arrange payment by preparing a bank cheque for the GST payable and presenting this to the seller at settlement. The purchaser’s obligations are discharged in such instances, even where the seller does not forward the funds to the ATO.

The seller will be required to give notice to the buyer on whether they have an obligation to withhold GST at settlement and this notice requirement will apply to all residential contracts. The notice should specify the applicable rate, being 10% of the unadjusted purchase price or 7% where the margin scheme applies.

The legislation makes special provision for joint venture agreements which provide for specific allocations of the sale price. In such instances, a party will not be in breach of contract by making the GST payment to the ATO instead of to an alternative party, as the payment is deemed to be compliant with that agreement.

For further information or to discuss a review of your contract, contact our office on 07 3106 3016.