GST Withholding aka GST at Settlement

Given the confusion already in the real estate and settlement professions I for one do not want to add to that, so here’s my take using the KISS principle:

How it works

  • The new requirements to disclose only apply to residential property including residential vacant land
  • Every seller must provide written disclosure to the buyer
  • GST is only required to be withheld if the sale of the property is a “taxable supply”
  • To determine if the sale of a property is a “taxable supply” remember the basic GST principles i.e. the supply of the property :
    • Must be a supply for consideration
    • Must be in the course and furtherance of an enterprise
    • The supply (the property) is connected to Australia
    • The entity (the seller) making the supply is registered (for GST)
  • If the seller is not registered nor required to be registered for GST, no GST is required to be withheld.
  • The “old” GST requirements that applied to commercial, industrial and retail properties remain the same

Who lodges the forms and makes the payment to the ATO?

If the withholding provisions apply the Buyer – via their conveyancer – is required to submit a Form 1 to the ATO.  The conveyancer should provide a copy of the completed Form 1 to the seller’s conveyancer so the seller knows the Buyer has satisfied that obligation.

The amount stated on the disclosure notice is to be withheld at settlement by the Buyer’s conveyancer who completes the Form 2 on settlement and makes payment of the withholding amount to the ATO.

Again, the buyer’s conveyancer should provide a copy of the completed Form 2 to the seller’s conveyancer.

Payment can be made by post; electronic transfer or over the counter at Australia Post.  If the settlement is taking place electronically payment can be made from the PEXA platform which enables all parties to see that the payment is being made.

The ATO will issue a receipt/acknowledgement once payment is received.  A copy should be provided to the seller’s conveyancer to on-send to the seller as confirmation that the buyer’s and the seller’s obligations have been satisfied.

I buy and sell real estate regularly – do these provisions affect me?

All sellers of residential real estate must provide their buyer with disclosure as to whether or not the withholding provisions apply.  If you buy and sell real estate regularly for profit or to develop there are two questions that need to be answered to determine if the provisions to withhold GST apply to you.  Firstly, are you carrying on an enterprise and if the answer to that question is yes, you are entitled to an Australian Business Number (ABN).  Secondly you need to consider whether your enterprise needs to be registered for GST.  If you are not required to be registered for GST even though you may be carrying on an enterprise the requirement to withhold GST will not apply.   The provisions only apply to the taxable supply of new residential property and all residential vacant land.

Are you carrying on an enterprise?

After reading far more information than is healthy for a woman of my age, it would appear that anyone involved in regularly buying or selling real estate for profit or development may be deemed to be carrying on an enterprise.  Whilst a lot of sellers are suffering losses in our current market, I’m certain they didn’t buy real estate to deliberately make a loss.  Unfortunately, the GST Act does not define “regularly” so if you are a property investor please, please, please seek advice from your accountant to see if your activities fall under the definition of “enterprise”.

Do I need to register for GST?

If you are deemed to be carrying on an enterprise you are entitled to an ABN however you may not need to register for GST, which then begs the question “When do I need to register my property investment “enterprise” for GST”.  You would all be aware of the need to register for GST if your business/enterprise earns income in excess of $75,000 per year however how and whether this is the measure/indicator to determine if your property investment “enterprise” needs to register for GST can only be determined by your accountant.  So if you are an investor in real estate for profit or you buy property to develop and you are doing this on a regular basis please, please, please seek advice from your accountant to see if you need an ABN and register for GST.

For further reading on whether or not your activities constitute an “enterprise” check out ruling MT 2006/1 which I know will give you nightmares – available at this link:

https://www.ato.gov.au/law/view/document?Docid=MXR/MT20061/NAT/ATO/00001

FAQ’s

  • What do I do if no disclosure is given by the seller?
    • If your Conveyancer is a member of the AICWA they have created a notice to be used in circumstances where the Agent has not used the updated REIWA form.
    • If the supply of the property is not a taxable supply and the seller fails to provide notice in the Contract, they can and should provide written notice prior to settlement.
    • There are penalties for not providing disclosure unless the ATO is convinced the seller/supplier had “reasonably believed they were not required to meet the notice requirements
  • I’m selling a vacant block of land that was created 5 years ago – do the provisions apply?
    • Disclosure applies to all sales of residential property including vacant land, regardless of age
    • The withholding provisions will only apply to vacant land if it is a taxable supply
    • To be a taxable supply the seller must be carrying on an enterprise and be registered for GST
  • It’s a new house but the seller is not registered for GST – do the provisions apply?
    • Disclosure applies to all residential properties
    • The withholding provisions will only apply to a new home where it is a taxable supply.
    • To be a taxable supply the seller must be carrying on an enterprise and be registered for GST

Disclosure is required on all residential properties however the requirement to withhold GST only applies if the seller is carrying on an enterprise and is registered for GST.

And remember : “To teach is to learn twice”. Joseph Joubert

Post by haskinssettlements 19 Oct 2018 0