From 1 July 2018 the purchaser of ‘new residential premises’ will be required to withhold the GST amount from the purchase price on account of the GST liability of the vendor and pay that amount directly to the Australian Taxation Office (ATO) on or before settlement. This represents a change to the current regime where a vendor who makes a taxable supply of new residential premises is required to remit the GST to the ATO after lodging their BAS. Under the new regime, the responsibility for payment of the GST to the ATO shifts to the purchaser who will pay the GST liability of the vendor out of the purchase price of the property.
In general terms, new residential premises are defined in the GST Act to include residential premises that have not previously been sold as residential premises and
have been built, or contain a building that has been built, to replace demolished premises on the same land that are not created through a substantial renovation and are not commercial residential premises. “The exclusion of substantial renovations ensures that a purchaser does not have to determine whether renovations are ‘substantial renovations’ of the property, which may be difficult to assess at the time of purchase. Similarly, commercial residential premises are excluded to make it clear that a withholding obligation does not apply in relation to residential premises that are both ‘new residential premises’, and ‘commercial residential premises’”.
To help purchasers comply with their obligation to withhold, a vendor that makes a supply of new residential premises by way of sale is required to notify the purchaser in writing of certain matters before making the supply. This notification can be provided through the 2018 edition of the Contract for Sale of Land or in a separate document.
The new regime applies to sales of ‘new residential premises’ that are settled on or after 1 July 2018, unless the contract is entered into before 1 July 2018 and settlement occurs before 1 July 2020.
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