GST at Settlement
From 1 July 2018, a withholding amount from the contract price is required to be paid on settlement to the ATO, if the purchase is of:
- New residential premises; or
- Land that could be used to build residential property.
New residential premises are those that:
- Have not been previously sold;
- Have been created through substantial renovations (however, this is excluded from the withholding obligation); or
- Are new buildings build to replace demolished buildings on the same land.
The rationale for the withholding obligation was announced in the May 2017 Federal budget. The aim was to ensure that the payment of GST was not avoided by ‘phoenixing’ activity by Property Developers and Vendors.
Phoenixing activity is where property developers and Vendors avoid the payment of debts, including taxes through insolvency. Property suppliers avoid payment of GST by liquidating their businesses and starting a new business under a new entity.
Properties that are included:
- New residential premises
- House and land
- Off-the plan
- Display homes
- Potential residential land
- Land that could be used to build residential property
- Property subdivision plan
Properties that are excluded:
- New residential properties created through substantial renovation.
- Commercial residential premises.
- Commercial property
- Residential property that are no longer new as they have been sold, have been leased long-term, or continuously or solely rented for a period of five (5) years or more.
- Potential residential land that contains a building, where the use is for a commercial purpose, or supplied to a registered business who acquired it for a creditable purchase e.g. build and sell new residential premises.
The amount a purchaser is to withhold to remit to the ATO is generally as follows:
- 1/11th of the contract price
- 7% of the contract price
- 10% of the GST exclusive market value