Concise Super | GST on SettlementGST on Settlement

If you are thinking of buying or selling a property or land here is an update of the GST rules that were introduced to combat phoenixing.

Property purchase contracts that include GST in the purchase price that are signed on or after 1 July 2018 are affected by the new notification and payment obligations expected by the Australian Taxation Office (ATO).

Property affected by this new regime includes:

New residential premises
Land used for residential purposes (and does not have any residential buildings on it) e.g. land zoned for residential or commercial use

The Purchaser is not required to register for GST to purchase properties under the new obligations however, the Purchaser must now pay the GST directly to the ATO and not to the Vendor.

The Vendor/Supplier must provide the Purchaser/Purchasers Agent the following written information at the time of purchase, either in the contract or in addition to the contract:

Supplier name and ABN
Whether or not an amount of GST is to be withheld from the contract price (for payment to the ATO upon settlement)
Contract price inclusive of GST
Settlement date

The withholding amount can be determined by either calculation:

1/11th of the contract price
7% of the contract price (only if the margin scheme applies)
10% of the GST exclusive market value of the property

General settlement day adjustments should be disregarded (i.e. apportionment of council and water rates etc) when determining the amount to be withheld.

If no GST is included in the purchase price then no further action is required by the Purchaser.

If GST is included in the purchase price, then, it is the Purchaser’s responsibility to notify the ATO about the property, GST withholding amount and settlement date. Payment of the GST amount is paid at settlement therefore it is recommended to engage a licenced conveyancer or solicitor to handle the GST withholding notification and payment during the settlement process.

The Purchaser/Purchaser’s Conveyancer must notify the ATO on two occasions:

After contract has been signed (before settlement date)
When lodging the “GST property settlement withholding notification form” the Purchaser will use the information supplied on the contract and by the Supplier. The settlement date can be an estimated date on this form as the ATO is aware that some properties are purchased ‘off the plan’ and the settlement date may change.
Upon lodgment the ATO will provide a unique payment reference number (PRN) and lodgment reference number (LRN).
On settlement
The Purchaser pays the contract price less the GST to the Supplier (withholding the GST amount).

When lodging the “GST property settlement date confirmation form” the actual settlement date must be included. At the same time the GST amount is paid to the ATO referencing the LRN and PRN.

The Supplier is obligated to report the property sale as per the actual settlement date in their Business Activity Statement (BAS). The ATO will match the Supplier’s details and the Purchaser’s forms lodged and process the credited amount of GST (withheld by the Purchaser) against the net amount reported in their BAS. Thus, the Supplier does not physically receive the GST amount documented in the sale contract.

There are administrative penalties for both parties for non-compliance in particular:

Where the Supplier fails to provide written notice of information to the Purchaser
Where the Purchaser fails to pay the withheld amount to the ATO

The ATO has provided a transitional period arrangement for contracts that have already been entered into. The transitional period excludes contracts entered into before 1 July 2018, and where payment (other than a deposit) is made before 1 July 2020.

If you would like further information regarding GST on settlement and how it may affect you, do not hesitate to contact Concise Super on 03 9838 3055.

Disclaimer
This information is for general information only and does not constitute financial advice or take into account your personal needs, objectives and financial situation. Before making any decisions, we recommend you seek professional advice.