Just when you think you have a handle on what is going on, a new financial year ticks over and just like that changes to property laws have taken affect.
So here is what you need to be across to avoid getting stuck in all the tricky red tape.
The ATO has introduced a new regime that requires buyers of residential premises or land to pay GST to the ATO at settlement.
The withholding regime generally applies to all contracts entered into after 1 July 2018.
The only contracts entered into prior to 1 July 2018 that will require GST to be withheld will be where settlement is to occur after 1 July 2020.
The amount of GST to be withheld will depend on the circumstances.
Generally 1/11th of the contract price must be withheld by the buyer at settlement.
However if the margin scheme applies, the buyer must withhold 7% of the purchase price. This is even if the actual GST payable by the seller pursuant to the margin scheme is greater or less than 7%.
There are penalties for non-compliance.
For a seller who fails to provide a notice to a buyer or fails to provide the required information, penalties of up to $21,000 for individuals and 5 times that amount can apply to corporations.
If a buyer does not withhold GST as required, the buyer may be liable to pay an amount equal to the amount they were supposed to withhold. This could even occur if the buyer was not given a notice by the seller, but ought reasonably to have believed that GST should have been withheld.
It may seem like more red-tape in the sale process, but the ATO has identified lost revenue because of developers winding up their development entity without remitting GST they receive from the sale of lots in developments.
The seller must notify the buyer of residential land whether GST is required to be withheld GST at settlements and the amount that must be withheld.
The standard contract includes the seller’s notice to the buyer.
The buyer must lodge notices with the ATO to notify the ATO of the upcoming settlement and must pay the GST directly to the ATO upon settlement.
A notice must be given to a buyer in every circumstance except where:-
- The premises are not residential in nature (eg. commercial property); or
- The buyer is registered for GST and is purchasing the property for a creditable purpose.
Even though the notice by a seller is required to be given and a purchaser of any residential premises or land, a buyer is only required to withhold GST in relation to”new” residential premises or land. Therefore GST does not have to be withheld in relation to:-
- Existing residential premises; or
- Substantially renovated residential premises.
Confused, unsure, need more information?
The information contained in this fact sheet is general in nature, if you require further information, please contact Lewis & McNamara Solicitors for further information.
Lewis & McNamara Solicitors regularly run information sessions for industry professionals including accountants, bankers, brokers, financial planners and real estate agents. If your team would like a seminar on this or any other topic tailored to your needs, please contact us.