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The New GST Withholding Regime and what it means for Purchasers.

There have been some recent amendments to GST laws as they apply to relevant sales. Currently a seller (such as a developer) who is registered or required to be registered for GST is required to pay GST on sales of new residential properties or subdivided land.

In recent years the ATO has identified that some developers are making taxable sales of these types of properties and failing to remit the GST collected from purchasers to the ATO. The development company then becomes insolvent with the GST never paid. This practise has become known as ‘phoenixing’.

It is estimated that for the 5 years ending 2017, the Government has lost $1.8 billion in GST revenue.

To counteract the lost GST revenue, from 1 July 2018, purchasers of new residential premises or new residential vacant land are required to withhold the sellers GST amount payable under the contract price and remit this to the ATO.

A purchaser will be required to withhold the GST amount and either pay the GST to the ATO on settlement or provide the seller with a bank cheque payable to the ATO.

The seller is required to advise the purchaser if GST is applicable on the property being sold.

These arrangements apply for any contract entered into after 1 July 2018. The laws will not apply to contracts entered into before 1 July 2018, on the basis that those contracts settle prior to 1 July 2020.

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