Lawyers working in Conveyancing regarding the purchase and sale of land need to be aware of the new GST Withholding regime. This will also a require a change to the standard Contract of Sale published by the Law Institute of Victoria and the Real Estate Institute of Victoria.
As and from 1 July 2018 (in addition to the Foreign Resident Capital Gains Withholding regime which came into effect on 1 July 2016, and further changes to the same regime which took effect on 1 July 2017) a purchaser who is a recipient of a taxable supply must pay the Australian Taxation Office 1/11th of the purchase price or 7% of the price where the margin scheme applies on or before the date of settlement (unless another date is mandated by the ATO).
A taxable supply is defined as:
- New residential premises that have been created through substantial renovations of a building and are not commercial residential premises; or
- Potential residential land i.e. included in a sub division and does not contain any building that is in use for a commercial purpose.
- The purchaser is not registered within the meaning of the GST Act.
- The purchaser has not acquired the potential residential land for a creditable purpose (it does include a demolished building that is rebuilt i.e. this is a new residential premises).
The obligation is on the purchaser to make a payment on account of the vendor’s potential liability for GST under the GST Act.
The payment obligation arises in respect of a settlement of a Contract of Sale of Land if it occurs after 1 July 2018, even if the Contract was entered into before that date.
The payment obligation will apply to Contracts of Sale entered into before 1 July 2018 where settlement occurs after 30 June 2020. An exemption exists for existing contracts entered earlier than 1 July 2018 where settlement takes place before 1 July 2020.
The amount to be paid is 1/11th of sale price (unless the Margin Scheme applies) as set out in the Contract of Sale. The 1/11th is not payable on the adjusted sale price payable at settlement which takes into account adjustments. In other words the 1/11th is deducted from the vendor’s sale proceeds. The vendor then has an entitlement to a GST credit for the amount withheld.
Unlike the Foreign Resident Capital Gains Tax Withholding regime there is no process for a Clearance Certificate to be obtained from the ATO. The purchaser is strictly liable to pay the ATO the GST amount the vendor was entitled to withhold from the Contract.
The vendors of any residential premises or potential residential land are required to give a written GST Withholding Notice in accordance with the Taxation Administration Act. This needs to be provided to the purchaser at least 14 days before settlement. The purchaser is then obliged to deduct the relevant amount from the Contract price.
A new Special Condition 5A will be made to the existing LIV / REIV Contracts.
In the fullness of time there will be mechanisms designed to ensure that any amount withheld from the settlement sum is in fact paid over to the ATO following settlement. Payment will be the responsibility of the purchaser and invariably the person acting on behalf of the purchaser.