Next week the Treasury Laws Amendment Act (2018 Measures No.1) 2018 (Cth) will come into effect, imposing new GST withholding obligations on purchasers of certain residential real property. The new measures have been designed to prevent property developers from intentionally avoiding their GST obligations, after a spate of incidents in recent times.
From July 1, purchasers of new residential premises or potential residential land will be required to remit the GST payable on the supply directly to the Australian Taxation Office (ATO). The payment will be due on or before the day on which any part of the consideration for the supply is provided, with this usually occurring at settlement. Relevantly, suppliers of residential land or potential residential land will be required to notify purchasers in writing if they are required to withhold an amount, what that amount is and when it is due to be paid. Failure to do so is a strict liability offence. Individuals who fail to provide the required notice may be fined 100 penalty units (currently $21 000), whilst corporations will be liable to a maximum of 500 penalty units (currently $105 000).
Generally, where a vendor makes a taxable supply of new residential premises or potential residential land, the purchaser will be required to withhold 1/11th of the price and pay it directly to the ATO.
However, there are some situations in which the amount to be withheld must be calculated differently.
Margin Scheme Sales
Where a property is sold under a margin scheme, the purchaser will be required to pay 7% of the contract price or price.
Mixed Supply Sales
Where a property is a mixed-supply, that is partly GST-free and partly taxable, a purchaser must pay the ATO 10% of the GST exclusive market value of the supply.
Sales with low or no consideration
The amount payable will be reduced and calculated using a reasonable apportionment of the contract price or price multiplied by the applicable rate.
Sales involving multiple purchasers
Where a sale involves multiple purchasers, who are not joint tenants, the amount to be paid will be; 7% as in the case of margin schemes, 1/11th of the contract price, or the price for their percentage of interest in the property purchased.