Property development and the new GST withholding regime from 1 July 2018

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Mar 2, 2018 | Posted in Tax
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Property Development and the New GST Withholding Regime – 1st July 2018

On February 7, 2018 the government introduced Treasury Laws Amendment (2018 Measures No. 1) Bill 2018 into the House of Representatives. The law imposes new obligations from 1 July 2018 on both the purchaser (required to withhold an amount) and the seller (required to provide documentation) when buying and selling new residential property. 

The new law has the express purpose of preventing the loss of the GST revenue due to the ‘phoenix1’ activities of some property developers. Phoenix in the GST sense involves making a taxable supply (selling property), collecting a GST component and then liquidating the company prior to payment of the GST liability only to continue business via another corporate vehicle or some other structure. 

Treasury has highlighted the size of the transactions in the property development industry and the timing difference between collection and payment; as representing too great a temptation for the small percentage of operators who choose to carry out schemes such as these. The cost to the revenue is estimated to exceed $1.5 billion.

Which transactions are affected?

Once the legislation passes both houses, new withholding requirements will be imposed upon property developers and their customers where the transaction involves the sale or a long term lease of: 

  • New residential premises - except a substantial renovation or commercial residential premises; or
  • Potential residential land included in a property subdivision plan – in some cases.


  • If the purchaser is registered for GST and acquires the property for a creditable purpose there will be no withholding required

When do the new rules start?

From 1 July 2018, GST withholding will apply to settlements.  Contracts entered into before this date are excluded unless they settle after 1 July 2020 – (e.g: off the plan purchases that overlap for instance).

How much is required to be withheld from the vendor (seller)? 

  • 1/11th of the contract price; or
  • 7% when the margin scheme is being utilised

Penalties for failure to withhold are significant and currently can exceed $100,000 for a company and $20,000 for an individual.

New notification requirement:

The seller will be required to officially notify the purchaser of the amount that is required to be withheld prior to settlement as well as the GST nature of the transaction.

The notification from the vendor to the purchaser will be required whether GST is payable or not and is required in all instances of making a supply of residential property NOT just new residential property. The withholding rules only apply to new residential or potential residential property that has been subject to a subdivision plan.

Failure of the vendor to provide the notification can result in penalties exceeding $100,000 for companies and in excess of $20,000 for individuals.

How is withholding done in practice?

The purchaser is required to remit the withheld amount directly to the ATO.

A recent concession built into the rules during the consultation stage is that the purchaser will be permitted to hand over a bank cheque in favour of the ATO at settlement to the vendor. This will discharge the purchaser’s obligations under the new rules. Online property settlement platforms such as PEXA which are gaining in popularity due to their transparency and efficiency will also be permitted to handle the withholding transaction. PEXA will remit the GST directly to the ATO on behalf of the purchaser.

The seller will receive a withholding credit once the purchaser has made the payment to the ATO (or the bank cheque is sent in by the seller), this credit will be set against the supplier’s BAS liability.

Transactions between associated entities (family members and their entities say) are also caught as the GST legislation has a requirement that these be done at market value irrespective of whether any consideration is actually paid.

Joint and common ownership, Instalment sales, development joint ventures and off the plan sales all pose additional considerations that need to be addressed as the withholding process and timing may differ in each of these types of situations.

Once again the low bar set by some, means that all participants in the industry must add another set of hurdles to clear in this already heavily regulated space.

As with all tax legislation there are nuances and complications that are beyond the scope of this blog. If this legislation is likely to impact you or your business, you should schedule a meeting with your Ulton advisor as soon as possible.

Source:;query=Id%3A%22legislation%2Fbillhome%2Fr6028%22  - accessed 20th February 2018

1.       According to mythology the Phoenix was a sun/fire bird that rose from the ashes of itself to live again.

Daryl Corpe


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