GST WITHHOLDING ON REAL PROPERTY SALES
Since 1 July 2018 a GST Withholding regime has applied to certain real property transactions.
The withholding regime is in response to significant tax revenue being lost through phoenixing activities by some property developers and ensures that the ATO actually receives the GST on sale.
The new law applies to supplies of:
- New Residential premises, &
- New Subdivisions of potential residential land (i.e. vacant blocks)
It’s important to note that the withholding regime only applies if the sale is subject to GST, and this can sometimes be difficult to determine, particularly in relation to vacant land.
It is the vendor’s responsibility to notify the purchaser when a withholding payment is required and the amount of the payment.
The withholding amount is as follows:
- 1/11th of the contract price (some exceptions); or
- 7% of the contract price if the margin scheme applies to the sale.
This payment must be made by the purchaser on or before settlement.
The withholding payment then takes the form of a credit on the vendor’s Business Activity Statement and is credited to the BAS in the same reporting period that the vendor reports the GST on sale.
Whilst the new integrity measure does negatively affect the cash flow of developers and creates an additional compliance burden, the significant impact in GST collected over the forward estimates period would appear to justify this change.