Is GST charged on residential property?
If you are a vendor who is selling new residential premises or potential residential land, you may need to pay Residential Withholding Goods and Services Tax (RW GST) at settlement to the Australian Taxation Office (ATO). The way RW GST is paid for certain property transactions affects both purchasers, vendors, and their representatives alike.
What is GST residential withholding payment?
The requirement to pay the RW GST applies to a person/company/entity that is registered for GST and is selling either/both:
- New residential premises
- Land that could be used to build new residential property – potential residential land.
How is Residential Withholding GST paid?
Prior to 1 July 2018 the vendors alone had the responsibility and expectation to pay the GST obligations directly to the ATO after they received their funds at settlement.
Some unscrupulous developers were getting paid purchase prices that included a GST amount, and then before paying the GST to the ATO, these developers would dissolve the company and simply created a new company for the next development (“phoenixing”), whilst pocketing the GST funds and paying nothing to the ATO.
The ATO decided that in order to avoid the above phoenixing, and make it quicker and more reliable, they would “cut out the middleman” and take the RW GST amount due by vendors, directly from the funds the purchasers pay at settlement for the sale of the property. Please note a purchaser does not need to be registered for GST.
What is a vendor GST withholding notice?
Since 1 July 2018, the vendor must provide a written notification (“Suppliers Notice”) to the purchaser advising whether a RW GST withholding obligation applies on the property, and if so, the amount payable. Penalties may be incurred if a vendor does not provide the notice to the purchaser.
This means at settlement the purchaser will have all the funds for settlement and instead of handing it all to the vendor, it is paid out as follows:
- The withheld amount of RW GST is paid direct to the ATO
- The balance of the sale price of the property to the vendor or as the vendor directs
Who pays the RW GST – the vendor or purchaser?
The RW GST amount is paid out of the funds the purchaser pays to the vendor. It is NOT an additional payment required to be paid by the purchaser.
The ATO also requires that a purchasers conveyancer/solicitor lodge two forms being the GST property settlement withholding notification and the GST property settlement date confirmation with the ATO in respect to the RW GST.
Once the RW GST payment is made at settlement the credit for the amount withheld is allocated to the vendors GST property credits withholding account. These credits can be viewed online through ATO portal or MyGov accounts.
Penalties for not meeting the RW GST withholding obligation
Both the vendor and purchaser can incur penalties if they do not comply with the ATO requirements in this regard.
Please note the above advice is general only and is specific to the individual Contract in question.
For further clarification on the above, please feel free to phone me to discuss.
ABOUT CHRISTINE BASSETT:
Christine is a Licensed Conveyancer and Justice of the Peace at Coutts’ Narellan office. Since joining Coutts Lawyers & Conveyancers in 2013, Christine quickly immersed her interest into property and has since completed studies of Conveyancing Law and Practice at Macquarie University; and is accredited with the Australian Institute of Conveyancers NSW.
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This blog is merely general and non-specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.