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Changes to GST payments at settlement

By Michael Walkden

Changes to GST Laws – Residential Land

You should be aware that from 1 July 2018 purchasers of new residential premises (and potential residential land included in a property subdivision plan) will need to withhold part of the purchase price from the vendor and pay that amount directly to the ATO on or before settlement. The amount to withhold will generally be one-eleventh of the contract price or 7% if the margin scheme applies.

This applies for all taxable supplies of new residential premises (and taxable supplies of potential residential land) regardless of whether the contract is entered into before, on or after 1 July 2018 unless the contract was exchanged between the parties before 1 July 2018 and the consideration is paid before 1 July 2020. There is no withholding obligation when the purchaser pays a genuine deposit – the purchaser only has to pay the amount to the ATO on or before settlement (unless the price is payable in instalments).

This is primarily an issue for vendors and purchasers and their legal advisors, as they are the parties that will be penalised if they don’t comply. However, you should be aware of this change to Australia’s GST laws. In the future, contracts dealing with these types of transactions are likely to include specific clauses to deal with the requirement for a vendor to give the purchaser a notice if there is a withholding obligation and giving the purchaser the contractual right to withhold part of the price.

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