Changes to GST payments at settlement Effective 1 JULY 2018

ATO is changing the way they collect goods and services tax (GST) on some property transactions during the settlement process.

From 1 July 2018, purchasers of new residential premises or potential residential land are required to withhold an amount of the contract price and pay this directly to ATO as part of the settlement process. The amount of GST will not change.

This does not affect the sales of existing residential properties or the sales of new or existing commercial properties.

How the change may affect you

For property transactions, purchasers will need to:

  • split the amount of GST from the total purchase price
  • pay the GST component directly to ATO by a disbursement at settlement
  • pay the GST exclusive purchase price to the property developer (vendor).

Property developers will need to give written notification to the purchasers when they need to withhold. The information can be included in the sale contract or in a separate document. The liability for the GST remains with the vendor, and there are no changes to how vendors lodge their business activity statements.

What you should do next

Developers should seek legal advice to ensure contracts for residential premises (including existing residential premises, new residential premises and potential residential land) are properly drafted or amended to comply with the changes proposed by the Bill. Developers will also need to carefully consider the cash flow and other economic impacts of the changes on their current and future developments.

Financiers of developers will need to factor in the effect of the withholding provisions when assessing funding requests, particularly in relation to presale requirements and the number of settlements required for repayment.

Buyers should ensure that they are aware of, and comply with, their withholding obligations (whether or not those are described in the contract).

If you are unsure of the correct GST treatment of the property purchase you are making, it is recommended you seek advice from ATO, or your tax professional. Conveyancers and real estate agents are not able to provide GST advice unless they are a Registered Tax or BAS (business activity statement) Agent.