Legislation introduced for GST withholding by purchasers of new residential premises and potential residential land

Yesterday legislation was introduced into Parliament to require purchasers of new residential premises and “potential residential land” to withhold an amount from vendors and to pay the amount directly to the ATO at or before settlement. The legislation takes effect from 1 July 2018.

The documents can be accessed here:

A media release by the Minister for Revenue and Financial Services (here) states that the changes will prevent tax evasion by unscrupulous property developers that fail to remit the GST on sales of new residential premises and new subdivisions, despite having claimed GST on construction costs.

An Exposure Draft of the legislation was introduced on 6 November 2017 and my discussion of the draft can be accessed here.

Summary of the amendments

The withholding regime – s 14-250 of Schedule 1 to the Taxation Administration Act

The amendments are to be introduced into Schedule 1 of the Taxation Administration Act 1953 as an extension of the withholding provisions in Division 14. These provisions require a payer to withhold part of monies payable to another person in certain circumstances and to pay those amounts to the ATO – for example PAYG withholding.

S 14-250(1) and (2) – The withholding obligations will apply to the supply of:

  • “new residential premises” – other than premises have been created through substantial renovations of a building and commercial residential premises; and
  • “potential residential land” which is defined as “land that it is permissible to use for residential purposes, but does not contain any buildings that are *residential premises” – other than land which contains any building that is in use for a commercial purpose.

For the sale of “potential residential land”, the withholding obligation only arises if the purchaser is not registered for GST or does not acquire it for a creditable purpose.

S 14-250(6)-(7) – The purchaser must pay to the Commissioner an amount equal to 1/11th of the “price” for the supply, but where the margin scheme applies 7% of the “price” must be withheld – although the Minister may determine a higher percentage but not exceeding 9%. Where the contract of sale specifies an amount as the “contract price”, that is the price to be used.

S 14-250(4) – The amount must be paid on or before the day on which any of the consideration for the supply (other than as a deposit) is first provided. This will usually be at settlement, but for a contract payable by instalments, the obligation will be triggered at the time of payment of the first instalment (not being the deposit).

S 14-250(11) – Where there are multiple purchasers, the supply will be treated as separate supplies to each purchaser and each purchaser will be required to withhold the appropriate portion of the price. Purchasers who are joint tenancy are treated as single recipients.

Where the purchaser pays the amount to the Commissioner, the supplier will be entitled to a credit equal to that amount.

Disclosure obligations on the vendor – s 14-255

S 14-255(1) – A supplier must not make a taxable supply of “residential premises” or “potential residential land” to another entity unless, before making the supply, the supplier gives to the other entity a written notice including:

  • Whether the other entity will be required to make a payment under s 14-250 in relation to the supply.
  • If so, particular information including the amount required to be paid and when the amount is required to be paid.

A notice will need to be given each time residential premises are supplied as a taxable supply – not just where the supply falls within the amendments. This is to assist purchasers to comply with the legislation.

S 14-255(2) – The notification obligation does not apply to the sale of commercial residential premises or to “potential residential land” to a purchaser who is registered or acquires the land for a creditable purpose.

S 14-255(6) – If the supplier does not give the notice, it is liable to an administrative penalty of 100 penalty units (a penalty unit is currently $210).

S 14-255(3) – The failure of the vendor to comply with the notification obligation under (1) does not affect the purchaser’s obligation to withhold and to pay the Commissioner.

 

Penalties

If the purchaser does not pay the amount to the Commissioner the purchaser will be liable to a penalty equal to the amount payable – s 16-30 of Schedule 1 to the TAA. However, no penalty will be applied where:

  • the amount related to the taxable supply of new residential premises and the purchaser reasonably believed the premises not to be new residential premises, the purchaser received a notification stating that the premises were not new residential premises or the notification indicated that no amount was required to be paid to the Commissioner, and at the time consideration was first provided for the supply there was nothing in the contract or any other circumstances that made it unreasonable for the purchaser to believe that the notification was incorrect.
  • the purchaser gave to the vendor a bank cheque for the amount and made payable to the Commissioner on or before the day consideration was first provided (usually settlement)

Proposed commencement of the amendments

The amendments are to apply to supplies on which any of the consideration (other than the deposit) is first provided on or after 1 July 2018, regardless of the date of the contract of the sale. However, if the contract was entered into before 1 July 2018, the amendments do not apply if consideration (other than the deposit) is first provided before 1 July 2020. Transitional provisions also apply to existing “property development arrangements” .

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