The new GST withholding rules for New Residential Premises are now law and will apply from 1 July 2018 on contracts entered into after this date.
Designed to counter property developers who use insolvency to avoid remitting GST on the sale of new residential premises, these new measures require purchasers of new residential premises or potential residential land to withhold an amount from the price for the supply and pay that amount to the ATO on or before settlement.
The three key areas that will be impacted are:
New property development arrangements; and
- Settlement process.
The fact that suppliers (developers) no longer receive the GST amount for the period between settlement and BAS lodgement will reduce cash held by the business and may impact working capital requirements and banking covenants. This could take even longer if the ATO decides to conduct a BAS review. This cash flow impact should be modelled into any new residential developments that will be sold post 1 July 2018.
The new rules will also impact the way landowners and developers contract for and pay for development services such as residential property. Although transitional provisions apply for contracts entered before 1 July 2018, care must be taken for contracts entered into after this date so that sales subject to the GST withholding rules adequately provide for the withholding rules.
The settlement process will require more administration by both vendors and purchasers. Please refer to table 1 below.
How will it work?
Table 1 below describes how it works and the obligations for suppliers and purchasers of new residential property and potential residential land.
Table 1 – Developer and Purchaser Obligations
|Suppliers (Developers)||Purchasers (or their Representatives ie. Settlement agent)|
|Supplier (developers) are required to notify purchasers of new residential property and potential residential land, in writing (either on the sale contract or a separate written agreement) on whether or not there is a requirement to withhold. Failure by the supplier of the property to notify the purchaser correct may result in penalties.
|Purchasers (or the representatives) is required lodge two forms to the ATO.
Form 1: GST property settlement withholding notification online form – enables a withheld amount to be paid to ATO. A purchaser or their representative must notify us prior to settlement the details of the parties to the contract and the property. Once the online form is submitted, we will provide a unique payment reference number (PRN) and a lodgement reference number (LRN). This form can be lodged any time after a contract has been entered into and prior to the settlement date.
Form 2: GST property settlement date confirmation online form – to be lodged on or before the date of settlement. The purchaser or their representative must notify the ATO (using the PRN and LRN) confirming property settlement date, and then pay the withheld amount.
|The supplier (developer) lodges their BAS when it is due and reports the taxable sale along with their other reported transactions.
When the BAS is lodged the credits in the GST property credit withholding account will be automatically transferred to the suppliers activity statement account. This will apply the withholding credits against the supplier’s BAS net amount.
Any surplus credits from the activity statement account will be refunded (subject to normal GST refund processes) or if a further amount of GST is payable, the supplier will remit that amount if it hasn’t been paid already.
Note: The credit will not be made available until the supplier has lodged their next BAS and it has been processed.
|Using the PRN, the purchaser will then pay the withheld amount directly to ATO.
Purchaser will receive an email confirmation once the payment is processed, as proof of payment for their records.
The credit will be transferred to the suppliers GST property credit withholding account. Once the payment has been credited, the supplier will then receive email confirmation.
Generally, if the sale contract specifies an amount that is the price of the supply (ie. the contract price) the withholding amount is calculated as 1/11th of the contract price. If one of the following exceptions arises, the withholding amount must be calculated as per the table below.
Table 2. Withholding Rates/Amount Purchasers Pays to ATO
|Withholding Situation||Amount Purchaser must pay to ATO|
|Margin scheme applies||7% of contract price|
|Supply between associates without consideration or for consideration at less than GST inclusive market value of the property.
|10% of GST exclusive market value of supply|
|Mixed supply, eg. Only partly a supply of new residential premises or potential residential land||A reduced amount using a reasonable apportionment of the contract price or price multiplied by the applicable rate.
|There are multiple purchasers (not joint tenants)
|7% (margin scheme) or 1/11th of the contract price or price for their % interest in the property.|
If you have any queries regarding the above, please contact Mimi Ngo.