February 26, 2018

There are upcoming changes to GST that will affect “new residential premises” and “potential residential land”, which will require a buyer to pay GST directly to the ATO as part of the settlement process.

The Bill setting out the changes, was introduced into Parliament on 7 February 2018 following the announcement of the law in last year’s budget.

Some of the proposed changes:

  1. purchasers of “new residential premises” or “potential residential land” must make a payment to the ATO on or before the day of supply which in most cases will be settlement;
  2. the amount of GST required to be paid to the ATO will depend on whether or not the margin scheme is being used in relation to the sale:
    1. if the margin scheme applies – the default rate is 7% of the purchase price unless the Minister has determined a percentage by legislative instrument (that is, the Minister can increase this percentage to a maximum of 9%);
    2. if the margin scheme is not being utilised then GST equivalent to 1/11th of the unadjusted purchase price is to be withheld.   
  3. from 1 July 2018, ALL sellers of residential property (not just sellers of new residential property) will be required to give notice to buyers that the buyer will be required to make a payment to the ATO on account of GST. 

What type of property does this Bill relate to?

Off-the-plan residential units and townhouses
House and land packages
Potential residential premises (land where residential property is permitted but does not currently contain residential buildings)
Second-hand property  X
Non-residential property X
Commercial residential premises (eg hotels, boarding houses) X
New residential property through substantial renovation X


When does this Bill come into effect?

There are transitional rules which will apply to contracts that have already been entered into before 1 July 2018 where settlement occurs before 1 July 2020.

Otherwise, the amendments will apply to contracts:

  1. entered into before 1 July 2018 where settlement occurs after 1 July 2020; and;
  2. entered into on or after 1 July 2018.

Where to from here?

With large implications for non-compliance, it is essential that if you are selling a new residential property, you are prepared for these changes and have the appropriate administrative measures in place.

Once the law is passed, developers will need to review and amend their sale documents to ensure they comply with the new changes.

It is recommended that you start now in considering the potential effects, including the potential impacts this will have on settlements and cash flow.

If you have any questions or concerns regarding the amendments or any other property matters please do not hesitate to contact Nina Lamprell of McInnes Wilson Lawyers Property Team.