If you are selling property, you may be obligated to notify Purchasers to withhold an amount (i.e. GST) from the purchase price on the contract to be paid to the Australian Tax Office (ATO). This can apply to some residential properties and potential residential land. Failure to notify is a strict liability offence that may lead to significant penalties.
When does the GST withholding regime apply?
The GST Withholding Form is required for all contracts entered after 1 July 2018, and contracts prior to 1 July 2018 if settled after 1 July 2020.
For the GST Withholding regime to apply, the Vendor is required to be registered for GST and the contract of sale is for:
1. New residential premises that:
- have not been created through substantial renovations of a building
- are not commercial residential premises;
2. Potential residential land that:
- is included in a property subdivision plan
- does not contain any building that is in use for a commercial purpose.
How much will be withheld?
The margin scheme calculates the GST amount that Purchasers are required to withhold.
- If the margin scheme applies, the Purchaser must withhold 7% of the contract price.
- If the margin scheme does not apply, the Purchaser must withhold 1/11 of the contract price.
The Vendor or developer must notify the Purchaser of their withholding requirements before settlements, and provide:
- the Vendor’s name and ABN
- amount required to be withheld to the ATO, and
- the payment deadline
Vendors who fail to notify Purchasers of their withholding requirements will be liable to 100 penalty units for individuals, and 500 penalty units for corporations.
Penalties won’t apply if the Vendor reasonably believed they weren’t required to meet the notice requirements, or made an honest and reasonable mistake on how the notice requirements applied.
Purchasers who fail to withhold GST and submit it to the ATO are liable to administrative penalty provisions (equal to 100% of the amount required to be withheld).
However, the penalty will not apply if the Purchaser is found to have reasonably relied on notification from the supplier to not withhold GST, or gave the Vendor a bank cheque payable to the ATO for the withholding amount.
Purchasers who are required to withhold must complete the following forms:
- GST Withholding Form 1 which notifies the ATO of the purchaser withholding obligation under the contract
- GST Withholding Form 2 which attaches withholding liability onto the purchaser’s account
Purchasers, through their representatives, may also lodge these forms through the e-conveyancing platform, PEXA.
GST Withholding Forms are included as part of our standard service. It’s something you need to be aware of but can leave to us to take care of. Email us at email@example.com or call us at +61 3 9590 618 if you have any questions.