Understanding GST on Residential Land Acquisitions

Before July of 2018, those looking to purchase a residential property and are registered for GST pay it on top of the property’s price to the vendor, which is then given to ATO (Australian Taxation Office). For those who did not register, it’ll be included in the property’s price and would be the responsibility of the seller to take out the GST for ATO. Unfortunately, property sellers have been evading this policy, claiming GST as input tax credits instead. Some even go as far as closing their business before the next activity statement was required so that they don’t have to deal with it.

Because of this, since July of 2018, people looking to buy land for residential purposes will have to pay GST (Goods and Service Tax) separately to ATO.

In this article, we’ll talk about how this works and how it applies to you.

Where the GST policy applies

GST is generally applied to all leases, both potential residential land and new residential premises.

New residential premises mean areas that were not previously sold for the purpose of residing in. Potential residential land means the land that wasn’t initially intended for residential property.

Calculating the GST

Here’s how GST will be calculated in most, if not all, cases.

If the margin scheme applies to the purchase, approximately seven per cent of the total price is to be withheld for GST. If the margin scheme does not apply, then roughly nine per cent is to be withheld. That said, if the property is being sold for less than the market value, ten per cent is to be withheld.

The purchaser’s role

Whether you’re registered to GST or not, here’s what you need to do if you were purchasing a new residential premise or potential residential land.

The ATO will require you to complete two forms. The first form is the “GST property settlement withholding notification” form, which lets the ATO know about the ongoing sale and produce a reference number to the payment and lodgment. The second form is the “GST property settlement date confirmation,” which is then followed by the payment to ATO.

The vendor’s role

As for the vendor, he or she will have to notify whether the buyer will have to withhold the GST. If the buyer must withhold, the vendor specifies how much is to be withheld and when it must be given to ATO.

To remit the GST, the buyer will have to complete the Law Society’s 2018 contract and provide all the necessary details. These details include, but aren’t limited to, the amount to be paid, the proportion of residential withholding payment, business address, and so on. In the case that the details above are not known to the buyer, the vendor will have to give all the information within two weeks since the contract was made.

Final Thoughts

While the policy might seem a little too complicated for many to follow, the ATO leaves you not much of choice. Failure to follow the new regime will end with severe penalties, such as liability for the amount that isn’t withheld. That said, problems may also arise because of the vendor from failure to share information or complete specific tasks on time.

We hope that you’ve learned something from this article. Remember, do plenty of research before you go about purchasing land or premises. That way, you are prepared for anything, ensuring and that the sale goes as smoothly as possible.

GLG have been providing tailored solutions for clients in Brisbane for many years, get in touch with us to see how we can help you keep your business and business transactions within the law and protected.