A few months ago we wrote about the proposed changes to how GST on new properties is accounted for. These changes are now law, coming in as of 1 July 2018. We are now seeing a number of clients asking how this will actually work:
Who is affected?
The types of property transactions affected are taxable supplies of new residential premises or potential residential land. Contracts for these transactions entered into before, on, or after 1 July 2018 are impacted by the changes. There is transitional relief available for suppliers and purchasers who have entered into contracts before 1 July 2018.
Instead of paying the full contract price to the supplier (for example vendors and property developers) at settlement, a purchaser is now required to withhold an amount from the contract price and pay that amount directly to the ATO.
What the ATO require?
There are two online forms that need to be submitted to the ATO.
The GST property settlement withholding notification form (form one) is used to advise the ATO that a contract has been entered into for the supply of new residential premises or potential residential land in which there is a withholding obligation. The purchaser or their representative (usually a conveyancer or solicitor) can submit form one at any time after a contract has been entered into and prior to the date the withholding obligation is due. Usually that will be the settlement date but if the contract is an instalment contract it will be the date the first instalment is paid.
The GST property settlement date confirmation form (form two) is used to confirm the settlement date. The purchaser or their representative can submit form two at the time the withholding obligation becomes due, either when the first instalment is paid or at settlement, or as soon as practical thereafter.
Purchasers are only required to submit one set of forms for each property transaction. If however, the purchaser or supplier details have changed since lodging the GST withholding notification form, you will need to complete and submit another form one GST property settlement withholding notification form.
Who can complete and submit?
Purchasers are required to complete and submit the two online forms. A purchaser can authorise a representative to submit the forms on their behalf by giving them a signed declaration which states that the purchaser has authorised the representative to lodge the document; the information is true and correct; and the purchase is aware that the representative is not a registered tax agent or Australian legal practitioner and they cannot provide tax agent or legal services (conveyancers only). This declaration needs to be kept for five years and does not need to be submitted to the ATO.
Depending on the state or territory the property is located in, the purchaser’s representative can include a:
What happens next?
Once the GST property settlement withholding notification is received, a unique lodgement reference number (LRN) and payment reference number (PRN) will be issued by email within 24 hours. Only one unique PRN is issued per withholding notification form, even if multiple purchasers or suppliers are supplied on the form.
The purchaser’s obligations are not complete until the GST property settlement date confirmation has been submitted and the withholding payment has been made.
These changes may take a while to get used to, if you have any questions please don’t hesitate to contact Paris Financial.
Rebecca Mackie, Partner, Paris Financial