June 23, 2020

purchasers required to withhold gst

The Treasury Laws Amendment (2018 Measures No. 1) Act 2018 (Cth) (GST Withholding Regime) provided that, with effect from 1 July 2018, purchasers of new residential premises or potential residential land must withhold the GST component of the purchase price and pay that amount directly to the ATO. Sellers would receive a credit on their next Business Activity Statement for this payment.

This payment must occur upon any of the consideration for the acquisition first being provided (that is a payment more than an at risk deposit), as well as being required to be paid to the ATO prior to or at the time of settlement.

The amount the purchaser must withhold is fixed, being:
 
  • 1/11th of the GST inclusive purchase price; or
  • 7% of the GST inclusive purchase price where the margin scheme has been applied party the parties.

The transitional arrangements

The GST Withholding Regime provided for transitional arrangements for transactions entered into before 1 July 2018, such that purchasers of new residential premises or potential residential land did not need to withhold and pay the seller’s GST liability to the ATO.

However, these transitional arrangements are set to end on 30 June 2020. As such, any transactions for new residential premises or potential residential land that are not settled by 30 June 2020 will not be able to apply these transitional arrangements and GST will need to be withheld by the purchaser upon any of the consideration first being provided to the seller.

The end of the transitional period may have significant consequences for purchasers and sellers that do not review their contracts and comply with their obligations under the GST Withholding Regime, which may include:
 
  • Purchaser that fails to withhold - gives rise to an administrative penalty under existing provisions (equal to 100% of the amount to be withheld)
  • Seller fails to notify a purchaser that the purchaser has an obligation to withhold GST and pay it to the ATO – strict liability offence with a maximum penalty of 100 penalty units for an individual (currently $21,000) and 500 penalty units for corporations (currently $105,000), alternatively the ATO can charge an administrative penalty of $21,000.

how can we help you?

McInnes Wilson Lawyers can help purchasers and sellers understand their GST requirements and comply with the rules. In particular we can:

  • provide you with advice on GST requirements, including withholding requirements;
  • review and provide you with advice on GST in purchase or sale agreements;
  • draft GST clauses for purchase or sale agreements;
  • assist with all property purchase and property sale matters.