Australians have changed the way of collecting goods and services tax (GST) on some property transactions during the settlement. Effective 1 July 2018, buyers who purchase new residential premises or potential residential land, has to withhold an amount from the purchase price and pay it as a tax on or before settlement. Some transitional rules apply to some contracts.
Implications
New Property Purchases
If an individual is a property developer, they have to inform the buyer that when they sell residential premises or potential residential land, then the buyer needs to withhold an amount. The amount can be maintained in the sale contract or a separate document.
If a buyer needs to withhold an amount, they must also include the details listed below:
• When the buyer needs to make the payment
• Your client’s name and Australian Business Number
• The amount the buyer needs to withhold and pay to us
• If the purchase includes a non-cash payment (such as land swaps), the GST-inclusive market value of that part of the payment
• Other information as stated in the regulations.
Your client doesn’t need to tell the buyer if they are selling:
• Commercial, residential premises
• The potential residential land where the buyer is a GST – registered business purchasing the property for a creditable purpose.
Once the buyer has paid the amount, regulatory authorities will make credit available to the individual in a GST property credit account and send you and confirm through email. This will be applied for this credit against their activity statement account once they lodge their business activity statement. There are no changes to the GST rate or the way your client lodges their BAS.
To assure purchasers, a supplier of residential premises or potential residential land must notify in writing whether a purchaser is needed to withhold an amount. If the purchaser is required to withhold, the supplier must notify the purchaser of the amount and when it needs to be paid to us. Normally the general rule is that if the sale contract specifies an amount that is the price of the supply, then the withholding amount is calculated on the contract price. However, there are some situations where the amount to be withheld must be calculated differently.