From 1 July 2018, buyers of new residential properties and subdivisions will be required to withhold and remit GST directly to the ATO in accordance with new legislation that has recently been passed by the Federal Parliament.
This regime will have a substantial impact on the cash-flow of developers and introduce a large administrative burden.
Key features
The GST withholding applies to the sale or long-term lease of taxable supplies of new residential premises and “potential residential land” in a “property subdivision plan” if the relevant lot does not contain a building in use for a commercial purpose (for example a sales office or display home).
The buyer must withhold and pay to the ATO:
- if the Margin Scheme applies, 7% of the contract price; or
- 1/11th of the contract price.
In most cases, the timing for remittance of the GST withholding amount to the ATO will be the day of settlement.
New notification obligations for developers
At least 14 days before the supply is made (generally, this is the settlement date), developers must notify buyers in writing as to whether GST withholding is required and details of the amount and time for payment. This applies even if GST is not applicable.
Penalties for non-compliance
Developers who fail to notify buyers regarding GST withholding may be liable for a fine imposed by a court of up to $21,000 for individuals or $105,000 for corporations. In addition, developers may be liable for any administrative penalties imposed by the ATO.
There are also penalties for failure by a buyer to withhold the GST withholding and remit it to the ATO including, but not limited to, a penalty equal to 100% of the amount to be withheld.
Developer credits
While developers still remain liable for the GST withheld, they will be entitled to a credit equal to the GST withholding amount remitted to the ATO by the buyer. If there is any variation between the GST withholding amount and the actual GST liability of the developer, this will be corrected in the developer’s business activity statement – hence the cash-flow issue!
Timeframes for preceding arrangements
GST withholding applies to all relevant contracts that are:
- dated on or after 1 July 2018; or
- dated before 1 July 2018, if they settle after 1 July 2020.
If you need any assistance in understanding your obligations or the impact this may have on your business, please don’t hesitate to contact us.