GST Withholding

Goods & Services Tax…aka the GST. It’s everywhere. At the shops, when you pay a contractor, when you buy online - the list goes on.

And it now also impacts property transactions by way of GST withholding. But what is it? And how does it impact you when buying residential property?

GST Withholding

On July 1 last year, some changes were implemented by the Government in relation to the GST. These changes require purchasers of new homes or new vacant land to withhold an amount of the purchase price.

The withheld amount is paid to the ATO at, or just before settlement. This is then credited to the Seller’s GST obligations.

If the seller is not registered for GST (if they are an individual and not a company registered for GST, for example), then GST withholding is not applicable to the purchase transaction.

As part of the change in legislation, the Seller will need to notify the buyer whether or not there is a GST obligation as part of their purchase. This is normally done by way of a notification on the Offer & Acceptance and a GST withholding annexure where applicable.

What counts as a new residential premises or new land?

Vacant land that is part of a subdivision is classified as new vacant land. This could be a significant land estate, like Vasse Estate, or even a new block created as part of a small duplex subdivision if the seller has a GST obligation.

New residential homes are classified as those that have not previously been sold or have been constructed to replace building(s) that have been demolished. This could include purchasing a display home from a display builder, for example.

How does it work?

The most important thing to do is not stress! Although it may sound confusing, your settlement agent will be able help you through this process and will typically arrange for the GST to be withheld and lodged for you.

There is certain paperwork required so we recommend chatting with them so that you can give them authorisation to compete this on your behalf.

Once your settlement agent is authorised, they will arrange payment to the ATO on your behalf so it’s one less thing you have to worry about at settlement.

You may also want to chat to your accountant and/or the ATO themselves to get advice on how this may impact any other tax or GST obligations of your own.

The other important thing to note is that this amount withheld is not money payable over and above your purchase, like stamp duty for example.

For more information, chat to your settlement agent or visit this link to further detail from the ATO.

Sources:

Department of Mines, Industry Regulation & Safety, updated August 2018, 17 March 2019, https://www.commerce.wa.gov.au/publications/gst-withholding-what-you-need-know-settlement-industry-bulletin-issue-81