18 Feb GST Withholding on residential property – who has what responsibility?
GST (Goods and Services Tax) like in most parts of life in Australia pertains to the Queensland Property market as well, especially when it relates to new residential premises or what could be considered to be ‘potential’ new residential land/premises.
Any contract selling either new residential premises or potential new residential land in Queensland entered into after July 1, 2018, but not due to be settled until after July 1, 2020 will be subject to the GST withholding.
Important to note – any GST that is payable at the point of settlement is the responsibility of the BUYER to withhold and provide to the SELLER in the form of a bank cheque.
However, Sellers, don’t relax just yet – you aren’t completely absolved of responsibility here – you have your obligations and we’ll get to that in a moment.
Regardless, our team at Top Gun Conveyancing is here to help you through, whether a Buyer or Seller – now let’s have a closer look.
So what sort of Queensland properties – or potential properties – are we talking about here?
NEW RESIDENTIAL PROPERTY
* Property that has never been sold as ‘residential property’ before – for example, new house and land package built onto an unused block in Queensland, then sold to Buyer – GST would have to be withheld by the Buyer
* A premises built to replace demolished premises on the same site – for example, a house builder buys an old house, knocks it down and builds – then Sells a duplex on the same block of land – both duplexes would apply as New Residential Property and GST would have be withheld by the Buyers
POTENTIAL RESIDENTIAL LAND
All of the following have to apply for land to be considered ‘potential’ residential land:
* The land is permissible (or zoned) to be used for residential purposes, but does not currently contain any buildings that are residential premises;
* The land is on a property subdivision plan, but nothing has been done with it yet – i.e. within a brand new housing estate development;
* The block/land in question does not contain any building used for commercial purposes;
* And an exclusion does not apply.
WHAT IS THE GST AMOUNT TO BE WITHHELD?
The buyer must withhold a GST amount of 1/11th of the settlement amount – for example:
Stephen and Jessica agree to buy a brand new, freshly built house built by John at an agreed settlement amount of $500,000. Stephen and Jessica are required to withhold 1/11th of that $500,000 – or $45,454.55 – and supply John with a bank cheque for that amount, to which he’ll then submit to the ATO.
WHAT IS THE MARGIN SCHEME?
The Margin Scheme applies if Selling the new residential property as part of your business. As a Seller of property in Queensland, you may be eligible for the Margin Scheme depending on several factors, including on when you originally purchased the property. You should obtain advice from your accountant to see if the Margin Scheme could apply in your circumstances.
The amount you are required to have the buyer pay you under the Margin Scheme is 7% of the purchase price.
Onto our example…
Rob settled on a property in South East Queensland back in March 2000 as a personal investment from a deceased estate. He rented it to tenants for many years until he was in a position to re-develop it. His house building business expanded in this time also and he was finally able to demolish his investment, re-build on it under his business and put it to market in February 2019. Stephen and Jessica were attracted to the brand new house built on the old block of land which had never been lived in, and purchased it for $500,000 from Rob’s company. Under the Margin Scheme, Stephen and Jessica are required to generate a bank cheque at settlement for 7% of the $500,000 – or $35,000 – for Rob to pay to the ATO.
WHAT HAPPENS IF THERE’S MORE THAN ONE PARTY IN THE PURCHASE?
In the case where there is more than one party involved in the purchase – i.e. two business partners purchase a New Residential dwelling as an investment – both are responsible for their part of the GST withholding – so 50% of the 1/11th each, which of course, pro-rates depending on how many parties are involved in the purchase.
COMMITMENTS OF THE SELLER
In the GST withholding cases above, while the Buyer must provide the Seller with the bank cheque to cover the outlined scenarios, depending on the situation, the Seller has their requirements as well.
The Seller needs to provide to the Buyer the following information before settlement:
If the Buyer is required to pay GST withholding
* Seller’s name
* Seller’s ABN
* GST withholding amount required to be paid by the Buyer
* Due date for the payment of the GST withholding amount
* If some of the consideration is not an amount of money, the GST inclusive market value of that consideration.
From there, once the Seller has received the GST withholding amount from the Buyer, it is the Seller’s onus to remit to the Australian Taxation Office and claim the relevant credit against their outgoings on GST.
If you wish to do more research, the ATO has a handy guide on its website also at www.ato.gov.au/GSTatSettlement, or check with your accountant on what, if any your obligations could be.
The team at Top Gun Conveyancing looks forward to working with you and getting to the exciting point of your new Queensland Residential Property investment!