New Residential Property and the prepayment of GST (10% or 7%)

The Bill introducing the “GST withholding” on new residential property is here. You can find it in Schedule 5 of the Treasury Laws Amendment (2018 Measures No. 1) Bill 2018. In summary…

Where an entity (the supplier) makes a taxable supply of new residential premises or a subdivision of potential residential land by way of sale or long term lease, the recipient of the supply (the purchaser) is required to make a payment of part of the consideration to the ATO directly, prior to or at the time consideration is first provided for the supply (other than as a deposit).

This is not exactly the same as the draft law released last year.

For example, it now only applies to new residential premises, other than those created through a substantial renovation and commercial residential premises; or subdivisions of potential residential land (This includes land that has been zoned for use for residential premises under a law of a State or Territory but that does not currently contain any residential premises).

Also, a withholding obligation does not apply if the recipient of the taxable supply is registered for GST, and acquires the potential residential land for a creditable purpose.

Where a purchaser receives a taxable supply to which the withholding obligation applies, they are required to pay to the Commissioner an amount on or before the day that consideration for the supply (other than consideration provided as a deposit) is first provided, or if the parties are associates and no consideration is provided, on the day the supply is made.

AND HERE IS THE BIG CHANGE…

The proportion of the contract price that must be withheld differs based on whether the margin scheme applies to the supply.

If the margin scheme does not apply, the purchaser must withhold 1/11th of the contract price or price.

If the margin scheme applies to the taxable supply, the purchaser must withhold 7 per cent of the contract price or price, or a greater amount that has been determined by the Minister in a legislative instrument. However, any determination by the Minister cannot require more than 9 per cent of the contract price or price to be withheld, which prevents an amount being set in excess of the GST payable on the supply.

If the amount is not at arms length it is 10% of the market value. And if there is one amount covering residential property and other stuff that cannot be separated it is 10% on the entire amount.

There is still a notification requirement such that the seller has to inform the purchaser of the obligation to withhold, but the time frame for this is now at the discretion of the Commissioner (not 14 days as it was in the draft).

And apart from where the withholding was made by mistake, there is no way for a developer to get any amount fo Get back except through the normal Activity Statement process – the withheld GST is treated as a credit on the next BAS.

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
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