GST Withholding QLD: What Buyers Must Withhold at Settlement

We break down all you need to know about GST WITHHOLDING when buying or selling a property in Queensland…

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GST Withholding

Ok, so since the above questions appeared on page 4 of the July 2018 REIQ Contracts, most professionals have not taken the time to understand what they mean and why they were implemented.

Well, we have finally decided to take a deeper dive into GST Withholding in QLD contracts and explain all you need to know.

The purpose of the GST Withholding is to oblige the GST that is owing on a property contract dated from 01 July 2018 is collected and paid directly to the ATO, as a part of the settlement process.

Please note that the GST withholding is not an additional amount on top of the purchase price – instead it comes out of the sale proceeds and is paid by the Vendor.

Who is eligible?

The sale of residential (or potential residential) land that involves subdivision or new residential land (i.e developments) will likely require GST withholding.

There is significant confusion surrounding whether a property is eligible for GST withholding. The GST withholding requirement is only applicable when the sale of residential land is a taxable supply for GST purposes. 

The supply of subdivided residential land is a taxable supply when the supply is made via an enterprise – for example property developers, or by an entity that is registered (or required to be registered) for GST.

Your typical “mum & dad” purchase or sale will likely not attract GST withholding obligations. If you are unsure, we suggest you speak with your accountant.

Why GST withholding?

GST withholding laws changed in 2018 to stop “phoenixing”. Phoenixing is the process whereby a company that sells properties as their business (i.e a developer) winds up their business prior to paying the GST owning. By shifting the burden to the Purchaser to collect the GST owing – the ATO gets paid and the revenue is not lost.

Vendor Responsibilties:

The Vendor must give the Purchaser written notice, prior to settlement, outlining (amongst other things), the amount that is to be withheld. This information is sent to the Purchaser’s Solicitors – so they can arrange for the payment to be made as part of the settlement process.

Usually, this amount is 1/11th of the contract purchase price, or 7% if the Margin Scheme applies. The Vendor will obtain the correct formula and amounts from their accountant.

Failure to comply will attract a maximum penalty of $21,000 for individuals, and $105,000 for companies.

Purchaser Responsibilties:

The Purchaser must notify the Commissioner of the amout that is to be withheld (Form 1). This occurs prior to settlement. Form 2 is required at the time of payment of the GST withholding. This process is organised by the Purchaser’s Solicitors.

The Purchaser must also advise if they are registered for GST, and acquiring the property for a creditable purpose (to conduct business). An example of a creditable purpose would be a builder purchasing land from a developer to build and resell.

Penalty: A Purchaser who fails to withhold or provide a bank cheque made payable to the Commissioner is liable for an administrative penalty equal to the amount that should have been withheld plus interest .

Hopefully this short blog helped to explain what GST withholding is, when it applies and how to deal with it. The lesson to take away is….if you are unsure, get the vendor/purchaser to ask their accountant!

We can help…

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We look forward to continuing to help thousands of Queenslanders every year with their conveyancing!

Any questions? Want to know more? Get in contact with us via the below form or via info@empirelegal.com.au.

Note: all information is general in nature and as each matter is unique please contact our office for tailored advices: the above does not constitute legal advice. 

What is GST withholding?

GST withholding requires a buyer of certain residential property to withhold an amount from the purchase price at settlement and pay it directly to the ATO, rather than paying the full price to the seller and leaving the seller to remit the GST.

It applies to new residential premises and to potential residential land in a subdivision. It does not apply to an ordinary sale of an established home between private parties, which is why most buyers never encounter it.

What does GST withheld mean on a settlement statement?

It means part of the price is not going to the seller. It is being paid to the ATO on the seller’s behalf and credited against the seller’s GST liability.

For a buyer the total outlay is unchanged. For a seller it means less cash at settlement than the contract price suggests, which matters if the seller is relying on those funds to complete another purchase the same day.

What is a GST withholding notice?

It is the written notice the seller must give the buyer before settlement, stating whether the buyer has a withholding obligation, and if so, the amount and when it must be paid.

The obligation to give the notice sits with the seller, and there are penalties for failing to give it. A buyer who receives no notice should not assume there is nothing to withhold, because the buyer carries the withholding obligation independently.

Who pays the GST withholding amount, buyer or seller?

The buyer pays it to the ATO, out of the purchase price. It is not an additional cost on top of the price. It is a redirection of part of it.

Two forms have to be lodged with the ATO around settlement, and the payment has to be made on the day. This is standard work for a solicitor and a genuine trap for anyone attempting a conveyance themselves.

When does GST withholding apply?

• New residential premises that have not previously been sold as residential premises
• Potential residential land included in a property subdivision plan, where the land has no building on it that is in use

It generally does not apply to an established home, to commercial property, or to new premises created through substantial renovation in some circumstances. The distinctions are technical and the consequences of getting them wrong fall on the buyer, so this is one to confirm rather than assume.

What happens if you fail to withhold?

The buyer can be liable for the amount that should have been withheld, plus penalties. That is the whole point of the regime: the liability was moved onto the buyer precisely because some sellers were not remitting.

If you are buying anything new, off the plan, or in a subdivision, raise GST withholding with your solicitor before you sign.