GST Withholding on Property Settlement

|by Jun Yang|Taxation and Compliance

The new GST withholding act on certain property settlement starts on 1 July 2018.

Previously as a property developer, if you sell new residential premises and potential residential land which refers to subdivided residential lots, you receive full amount of the contract price and submit the GST when it is due.

The background of the new GST withholding act is due to the phoenixing activity in the industry. Normally referring to the non-compliance developers collect the full amount of sale price and avoid to submit GST by dissolving their business before the payment obligation due of next Business Activity Statement.

For the contracts entering on or after 1 July 2018, the purchaser is required to withhold GST amount and remit to the ATO. The withholding amount is 1/11 of the contract price or 7% if margin scheme applies. As this is only a withholding requirement, purchaser is not required to register for GST.

Have to point out is this new GST act does not alter the GST obligation for vendor. Vendor must notify purchaser of the withholding amount and when to submit the amount to the ATO. The amount submitted becomes a credit on vendor’s ATO account and will offset to the amount reported on the BAS which vendor will lodge later on. Vendor is responsible for the GST reconciliation.

To summarise the process of GST withholding compliance work, there are four following steps:

Step 1 – Vendor notifies the purchase

Step 2 – Purchaser lodges the GST property settlement withholding notification from

Step 3 – Purchaser lodges the GST property settlement date confirmation from and pays

Step 4 – Vendor lodges Business Activity Statement

There are following exclusions supplies under the act:

New commercial residential premises, such as hotels and motels

new premises created through substantial renovation

Potential residential land that contains a building that is currently in sue for a commercial purpose

Residential block supplies to a GST registered entity for a creditable purpose.

This new act will see the increase of conveyance cost as well as the better management of cashflow for the vendor.

If you are not sure about the GST withholding amount, please seek professional advice.

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