What do the GST withholding provisions on REIQ contracts mean?

We often get asked about the GST Withholding questions in the standard REIQ reference schedule.

If you are a buyer:

You must advise:

1. Whether the Buyer is registered for GST?; and
2. If so, are they acquiring the land for a creditable purpose?

You can undertake a quick online search to confirm if the buying entity is registered for GST via www.abr.business.gov.au, or alternatively, you can confirm with your accountant.

A ‘creditable purpose’ is defined as the carrying on of a business enterprise. For example, a building company buying vacant land from a land developer to build a house and on-sell it.

In most cases where you have a ‘mum and dad’ home buyer, the Buyer will not be registered for GST or acquiring the property as part of a creditable purpose and therefore, the answer to these questions would be No.

If you are a Seller

A Seller is required to give notice to the Buyer in every transaction whether the sale is the supply of either new residential premises, residential land (new or potential) or an existing residential premises.

If the property is a New Residential Premises or Potential Residential Land, the Seller may be required to give an ATO GST Withholding Notice (including the Seller’s name, ABN, GST amount payment and payment date (which is usually the settlement date)).

What is a New Residential Premises?

A ‘New Residential Premises’ is defined as premises that have not previously been sold as residential premises (eg. new units and homes). It can also include premises which have been built to replace a demolished dwelling and off the plan purchases.

What is Potential Residential Land?

‘Potential Residential Land’ is defined as land that is permissible to use for residential purposes, but does not contain any buildings that are residential premises (eg. land in a new estate/subdivision).

What happens if the GST Withholding obligations apply?

If the Seller is registered for GST and is selling ‘New Residential Premises’ or ‘Potential Residential Land’, the Seller is required to provide an ATO GST Withholding Notice. The Buyer will be required to:

1. Complete a GST Property Settlement Withholding Notification Form
2. Complete the GST Property Settlement Date Confirmation; and
3. draw a cheque for 1/11^th of the purchase price (or 7% if the margin scheme applies) to the ATO and hand this to the Seller at settlement.

Importantly, the GST withholding amount is paid out of the Seller’s sale proceeds and is not in addition to the purchase price.

The Seller must lodge their BAS return when due and once that BAS is processed, the withheld amount paid to the ATO is available as a credit against the BAS net amount.

If the Seller is not registered for GST, then the Buyer will not be required to withhold any GST from the sale at settlement.

Where a Seller is selling an existing residential premises, the Buyer is not required to withhold any GST from the sale at settlement.

If you are a Seller, it is important to be aware of these obligations as it can impact upon cashflow and whether there are sufficient funds available to pay out loans etc.

As part of our service at MAP Lawyers, we will happily advise you on your obligations and take care of this process on your behalf.