PART 2 - Property development and the new GST withholding regime is now law

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Jul 24, 2018 | Posted in Business Advice, Tax
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The Treasury Laws Amendment (2018 Measures No. 1) Bill 2018 was passed on the 29 March 2018. This legislation requires the purchaser to pay any amount of GST to the ATO in respect of the purchase of certain residential properties. We released some insight into this legislation when it was still in the House of Representatives which is still valid. Please refer to our previous blog that has more details on which property transactions will be affected by the new legislation (Property development and the new GST withholding regime from 1 July 2018). This blog focuses on the notification requirements of both the vendors and purchasers.

Since the introduction of the new legislation the ATO have released the Law Companion Ruling 2018/4. This ruling explains the notification and withholding requirements for both vendors and purchasers of residential premises and potential residential land.

Vendors Obligations

All sellers of residential premises or potential residential land are required to provide written notice to the purchaser before the supply. This notice must state if the purchaser is required to make a payment to the ATO in relation to the sale.

Notices are not required for:

  1. Sale of commercial residential premises
  2. Sale of potential residential land where the purchaser is registered for GST and is buying the property for a creditable purpose.

Vendors can rely on a search from the Australian Business Register on the day of supply as evidence of the purchaser being registered for GST. Evidence on whether the purchaser is acquiring the property for a creditable purpose can be obtained by written correspondence from the purchaser or a statement in the contract to that effect.

The vendors notice can be included as part of the sale contract or as a separate document. When the notice is included in the sale contract it must be easily identifiable as the notice for the GST withholding requirements. 

On the 28th June the Queensland Law Society (QLS) and the Real Estate Institute of Queensland (REIQ) released updated standard contracts to facilitate the new GST withholding requirements.

The notice must include the following details:

  • Vendor’s name and ABN
  • The amount the purchaser is required to pay the ATO. If multiple purchasers any proportions need to be clear
  • When the purchaser is required to make the payment to the ATO
  • The GST inclusive market value of any non-monetary consideration
  • Any other matters that are specified in the regulations (there are none at this time)

If any details change then a new notice must be provided.

If the vendor fails to fulfill the notification requirements the purchaser should withhold an amount based on what information is known. If the purchaser believes an amount is required to be paid under the new rules then they should withhold 1/11th of the contract price. If there has been an agreement between the vendor and purchaser to apply the margin scheme the buyer should withhold 7%.

Current penalties for vendors are $21,000 for individuals and$105,000 for companies.

Purchaser Obligations

The buyers of new residential premises or potential residential land that are required to withhold GST need to notify the ATO by the approved online forms. These purchaser forms can found on the ATO website. The purchaser is required to submit two forms:

1.      GST property settlement withholding notification

2.      GST property settlement date confirmation

Form 1 can be completed any time after the contract was entered into, but prior to the date the withholding is due. 

Form 2 can be completed at the time the withholding amount becomes due. 

These forms can be completed by the purchaser or an authorised representative by providing them a signed declaration. The authoriser representatives depending on state or territory can include:

  • Conveyancer
  • Solicitor

Once the GST property settlement withholding notification form is received, a payment reference number (PRN) will be emailed out within 24 hours. This PRN is required to ensure payments go into the correct ATO account. Purchasers will reference this PRN when making the GST withholding payment to the ATO.

The payment of the GST withholding amount can be paid by either:

  • E-conveyancing (such as PEXA)
  • BPay
  • Credit/debit card
  • Electronic Transfer
  • Cheque 
  • Bank Deposit

Full details can be found on the ATO Website on how to pay.

For assurance for both the purchaser and seller the payment should be made through:

  • Solicitors
  • E-conveyancing platforms
  • Bank Cheque provided to the Seller

The current penalty for buyers failing to pay the GST withholding amount is equal to the GST withholding amount. 

Purchasers have two defences that can be used to remit the penalty:

  1. They received written notice from the vendor stating they were not required to withhold an amount and it would have been unreasonable for the buyer to believe the notice was incorrect.
  2. The purchaser provided the vendor a cheque that was payable to the ATO

Additional care will be required during contract negotiations to ensure the withholding requirements are dealt with correctly. The bright side of the new rules is that both vendors and purchasers should clearly ascertain the amount of GST that is applicable to the sale. Purchasers will need to be vigilant to ensure they comply with these new obligations as the penalty regime can result in significant fines. While your solicitors and conveyancer should be up to date with the release of the updated standard contracts and ATO online forms, if you have any questions please call your Ulton advisor.

DarylCorpe
Daryl Corpe
Chairman of Partners,

 

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