Buyers and sellers: responsibilities
Recently a GST Withholding rule was added to the tax laws. This new rule changes the responsibilities of sellers and buyers. In the past, the seller (company or individual) was responsible for holding onto the GST amount from the sale of new residential property or potential residential land. This law does not affect the sale of existing residential properties, commercial properties, or contracts entered into before 1 July 2018.
Previously, the seller had to transfer the GST amount from the final sale price to the Australian Tax Office (ATO). Now, this responsibility has shifted to the buyer.
First, the seller must send a written notice to the buyer:
- explains the procedure they will follow
- says whether or not the buyer must withhold a tax amount
- states the exact amount to be held
- requests that the buyer chooses the respective option in the contract.
If the seller is a company, it must lodge its Business Activity Statement (BAS) and report its GST liability (if any) in order to claim GST credit.
Once the buyer receives the written notice, the buyer must:
- lodge Form 1 (GST Withholding Notification)
- lodge Form 2 (GST settlement date confirmation)
- pay the GST amount directly to the ATO within the specified time frames.
Form 1 can be lodged at any time between the contract being entered and the date of completion. Form 2 (GST settlement date confirmation) must be lodged on or before the date of settlement. The GST amount is provided directly to the ATO on the date of settlement after lodging Form 2.
A seller company sends a notice to a buyer stating that a property will trigger the ‘withholding GST’ rule. The buyer enters a contract for a new $500,000 residential property or potential residential land and provides the seller with a $50,000 deposit. The buyer must then lodge Form 1. The GST amount is 1/11th is on the purchase price. Therefore, the GST withheld by the buyer is $45,454.54 ($500K -* 1/11) up to the date of settlement and directly paid by the buyer to the ATO after lodging Form 2 on the date of settlement. The final cheque amount given to the seller from the buyer would be $404,545.45 ($500k minus the $50,000 deposit and the $45,454.54 GST). The buyer’s solicitor may fill in and lodge the forms only if a signed declaration is provided by the buyer granting consent to the solicitor. The seller company must then complete its BAS and report its GST liability.
Get the right advice
Conveyancers and real estate agents are not able to provide GST advice unless they are a registered Tax or BAS agent. The information contained in this article is a summary of the GST changes. For more detailed information you are encouraged to contact the ATO office or speak to a licensed accountant.
Cornerstone Law Offices can help you with all your legal and property or conveyancing related matters. Call us on 1300 267 637 for an initial complimentary consultation (or contact us by clicking here).