Effective from 1 July 2018, the Federal Government has amended the GST law with respect to the sale of residential property. If you are selling:
1. New residential premises; or
2. Potential residential land,
then at the settlement of your sale, a cheque in the sum of the GST payable on the transaction will need to be given from the sale proceeds and paid by the seller immediately to the Australian Taxation Office. In other words, either 10% of the GST-exclusive purchase price or, if the margin scheme applies to the transaction, then 7% of the purchase price will be paid at settlement to the ATO.
Residential Premises & Potential Residential Land
New residential premises includes any property that has not previously been sold as a residential premises (house, unit, townhouse, etc) or is a new residential premises which has been built to replace a demolished premises on the same land (i.e. demolishing an existing house and replacing it with a new house, duplex, townhouses, etc).
Potential residential land is land which is included in a property subdivision plan, and does not contain any building which is in use for a commercial purpose.
The GST withholding will not apply if the buyer is registered for GST, and acquires the land for a creditable purpose (i.e. pursuant to the business/enterprise operated by the buyer, such as a property developer).
Who is liable?
Whilst the above changes are primarily directed for the attention of sellers, as the payment of GST at the time of settlement may impact on a seller’s expected cash flow at the time of settlement of the transaction, buyers of new residential property or land need to be similarly aware of these new provisions as if the buyer does not make the payment of GST at settlement, the buyer can still be held liable for the payment of the GST in accordance with the GST law.
Although the Seller must pay the GST to the ATO at settlement, it may well be that some or all of that payment is able to be claimed back by completing a Business Activity Statement – we strongly recommend that you seek appropriate taxation advice from your accountant or financial advisor as to how the payment of GST may impact you.