New GST Withholding Rules

A new system of GST withholding will commence on 1 July 2018 for developers who supply ‘residential premises’ or ‘potential residential land’. Under the new arrangements, purchasers will withhold the GST on the purchase price of new residential premises and subdivisions and remit the GST directly to the ATO as part of settlement. ‘Commercial residential premises’ and ‘substantial renovations’ are excluded.

A developer that is supplying residential premises or potential residential land will need to provide a notice to the purchaser providing the following:

• The developer’s name and ABN
• The amount that the purchaser has to withhold; and
• When the purchaser has to pay the amount withheld.

The amount to be withheld will be:

• 10% of the contract price; or
• 7% of the contract price if the parties have agreed to apply the margin scheme.

Developers will include their GST liability in their BAS and then receive a credit for the GST that has been withheld. A credit will only be available where the purchaser has actually paid the amount to the ATO and will receive the credit upon lodgement of BAS.

GST withholding commences 1 July 2018 for settlements entered into from this date. New development agreements must factor in the GST withholding obligations when dealing with clauses on the distribution of sale proceeds. Penalties will also apply for failing to provide a notice to the purchaser.