What is GST Withholding
If you buy a new residential property, or land with the intention to build a residential property and you make this purchase from a GST registered business, you need to withhold an amount for GST to pay directly to the ATO on settlement.
When does the GST Residential Withholding payment apply to me as a buyer?
There are three main circumstances when GST residential withholding applies to you as a buyer:
- If you buy from a developer who is registered for GST and the property is sold as a business transaction.
- The seller is GST registered and the sale is for a brand-new residential property or land that has potential for a residential build.
- When the buyer is not registered for GST and the sale is considered a ‘business to business’ transaction.
When do I make a GST withholding payment?
You pay the GST withholding amount at settlement of the property. This payment is made directly to the ATO. The balance of the sale price is then paid to the seller of the property or land you are purchasing, just as you would any other property purchase.
The supplier of the property, or their representative, will inform you in writing of whether GST needs to be withheld. You can also check this with your own conveyancer if you’re not sure. The GST at settlement payment is either incorporated into the contract of sale or as a separate document.
How much is the GST residential withholding payment?
As a buyer the amount of GST you should hold back for the ATO is:
- one eleventh of the contract price (for fully taxable supplies)
- 7% of the contract price (for margin scheme supplies)
- 10% of GST exclusive market value of the property/land (for supplies between associates for a price less than GST inclusive market value).
(Source: ATO | 18.08.2023)
The 3 Steps for withholding and paying GST to the ATO?
1. Supplier Notification.
First of all, the seller of the property will provide you with a Supplier Notification.
This notification includes:
- The supplier’s name and Australian Business Number (ABN)
- The amount to be withheld for GST
- Payment due date
2. Lodge a GST withholding form
Prior to settlement, as the buyer, you need to complete and lodge a GST withholding form called Form One: GST property settlement withholding notification. Please note: this form needs to completed, online and in one go, as it cannot be saved.
To complete the form you will need the following:
- The sale contract for the property
- The Supplier Withholding Notification
Once the ATO receive the form, a confirmation email is sent to you. This includes a lodgment reference number and a payment reference number. You should keep this email safe as you will need these numbers later in the process.
3. Make payment of GST at Settlement
On settlement day, you need to lodge Form Two: GST property settlement date confirmation. You then make the GST at settlement payment to the ATO, using your lodgement reference and payment reference numbers. The ATO will, again, send you an email confirmation of the payment.
The amount paid is then allocated to the sellers GST property credits withholding account. The ATO will also send the seller an email confirming receipt of the payment.
The seller reports the GST on their Business Activity Statement. Once processed, the ATO transfer the payment to offset the GST owed. This credit will show on their Activity Statement account.
Why do I not pay the seller directly?
Prior to this law, which came into effect on 1 July 2018, some unscrupulous developers sold properties with the GST included. They then dissolved their businesses, before paying the GST amount owed to the ATO. The developer would then create a new company for their next development. This was a process known as ‘Pheonixing’. The change in the law means that the GST is paid directly to the ATO and the credits are transferred to the developer once they lodge their Business Activity Statement.
When do I not have to withhold GST for the ATO when I settle on a property?
You generally do not need to withhold GST when purchasing an old residential property or when buying subdivided residential land, where the seller is not registered for GST. For example, a private seller selling their own house or part of their land.
If you would like some help with the ATO’s GST withholding at settlement payment, you can get in touch with your Etax Accountant, who can assist you with finding the relevant ATO information.