The transitional period for GST withholding rules is coming to an end, and with it comes new circumstances, especially for contracts started before 1 July 2018. Beginning on 1 July 2020, previously exempt agreements unsettled on or before 30 June will be subject to the withholding rules.
Under the transitional provisions, old contracts for the transfer of land in Queensland were not subject to the GST withholding regime given that the owner paid more than the deposit on or before 30 June of this year.
Which contracts are now subject to GST?
Any residential property or potential residential land covered by the specified period are now subject to GST. Developers with off-the-plan contracts on subdivisions or long-term residential developments where settlements will occur past 30 June should take note of this update.
For example, if a contract expected to settle before 1 July 2020 were subject to delays, this would be considered as falling within the jurisdiction of the GST withholding rules.
How does this apply to contracts in general?
Review anything you are currently undertaking and see if there are any which you had entered into before 1 July 2018. If you have a contract due to be settled on or after 1 July 2020, your contract will automatically be subject to the new GST rules.
For the involved parties to complete a settlement, there would have to be additional steps on both sides. On the one hand, the vendor must meet the notification requirements before settling. On the other, the buyer must complete the ATO online lodgement obligations, or they must hire a representative to do this for them.
If you have more recently-drafted contracts of sale, you might already have a clause dedicated to the GST obligations of both sides. However, agreements from before 1 July 2018 probably don’t have a section like this.
What should vendors do about the new rules?
If you are a vendor, you should discover whether or not it’s possible to amend the contract of sale to include GST on property settlement obligations for the purchaser into your contracts. Should this be not possible, you must identify the information you need from the purchaser as well as the notifications to give before settling.
Aside from these, you should also see to it that the buyer knows their withholding obligations. Follow up on your purchaser’s completion so that the property transfer happens as smoothly as possible.
What are the withholding rates?
The standard GST withholding rate is 1/11th of the contract price. This rule does not include any unusual adjustments like rates and taxes, which you add at the exact time of the settlement. For contracts under the margin scheme, the ATO takes seven per cent of the contract price as the withholding rate.
For properties without consideration and supplied by one associate to another, the withholding rate is ten per cent of the market value minus the GST. This rate applies to properties with consideration that is less than the GST- inclusive market value as well.
Under the GST withholding regime, the purchaser must make direct payments of the GST liability directly to the Australian Taxation Office. This rule applies to both residential premises or potential residential land, and for both sales or long-term leases. Furthermore, vendors must ensure that purchasers cover GST liabilities and provide for a smooth transition.
For more assistance regarding residential or commercial conveyancing in Brisbane, get in touch with us at GLG Legal today. We are leading commercial law experts, and we strive to deliver timely, relevant, and clear legal communication to our clients!