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GST withholding obligation at settlement
13 Aug 2020

If you are buying or selling a residential property in Australia — or even land that could be used to build a residential property (also known as ‘potential residential land’) — you will need to be aware of your GST withholding obligations.

That being said, it can be tricky to understand exactly what you are obliged to pay at settlement. We’ve compiled a quick guide to your GST withholding obligation to help guide you through the process.

What is the GST withholding regime?

On March 29, 2018, a law was officially passed to change the way that GST was managed. This was due to the phenomenon of “phoenixing”, in which a developer agrees on a price that includes GST at settlement but dissolves the company before the GST is paid to the federal government. Afterwards, the developer would simply start a new company and begin the process all over again.

As a result, billions of dollars in GST and GST tax credits have been lost. To prevent this from happening in the future, the Australian Taxation Office (ATO) now requires anyone purchasing certain residential properties to pay them the GST directly at settlement.

Failure to comply with these measures will result in penalties for both the buyer and the seller. The buyer will be liable to a fine of the amount of GST owed, and the seller will be required to pay either $21 000 (individuals) or $105 000 (corporations).

How much will be withheld?

Under this law, the amount of GST that must be withheld falls under two categories:

–>If the margin scheme does not apply to the property, the buyer is obliged to withhold 1/11th of the contract price of the property.

–>Under a margin scheme, the buyer must withhold 7% of the contract price.

Who does GST withholding apply to?

If you have entered a contract as of 1 July 2018 — or have entered into a contract prior to this date but settled after 1 July, 2020 — you are required by law to withhold GST. That being said, the law is only applicable to sales in which property is considered a taxable supply.

If you are buying a:

  • New residential premises;
  • House and land package;
  • Off-the-plan property;
  • Display home;
  • New apartment;
  • Potential residential land;
  • Property subdivision plan; and
  • Land that could be used to build new residential premises.

You are required to withhold GST and pay it to the ATO.

Still not sure whether you fit the bill? The answer is simple: if you are obliged to withhold GST, the seller must provide you with a written notification.

The Legal Practitioners’ Liability Committee (LPLC) have provided the following flow charts to further clarity and provide guidance on the GST withholding obligations:

  • Flow chart one. Do GST withholding provisions apply?
  • Flow chart two. GST withholding provisions apply- steps when acting for vendor.
  • Flow chart three. GST withholding provisions apply- steps when acting for a purchaser.

So, what do you need to do?

When purchasing any residential property in Australia, there are a few steps you must take:

  1. Obtain a written notification from the seller that states whether or not the sale will be subject to GST.
  2. Lodge a GST property settlement withholding notification. This lets the government know the details of your arrangement and what is owed in terms of withheld payments. At this stage, you will be given a lodgement reference number (LRN) and payment reference number (PRN) to identify your particular transaction.
  3. Lodge a GST property settlement date confirmation once the settlement has occurred.
  4. Pay the withheld amount (to the nearest dollar) to the ATO. You can also satisfy your obligation by providing a cheque made out to the ATO to the vendor during the payment for your first instalment or settlement, or you can authorise PEXA to distribute the funds to the ATO.

Alternatively, you can appoint someone —ideally a registered tax or BAS agent — as your representative to handle all of your GST withholding obligations. In this case, you will need to provide them with a signed declaration to authorise them.

For all further questions and inquiries on GST withholding obligations contact our office on (03) 8590 8370.

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

 Last updated: 13 August 2020 Article by: Halil Gokler

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Celal has been a great supporting presence during our first home purchase. My partner and I had used Haitch Legal for... contract reviews and conveyancing needs during settlement of our home purchase. Despite having a million questions Celal was always happy to answer them and guided us through the process. Everything was made simple for us to understand which gave us the right confidence to successfully purchase and settle our first home!read more
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Halil is a long time colleague of mine and I can testify to his professionalism and quality service. He is a smooth... operator who takes the guesswork out of your purchase or sale of property.read more
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I have engaged Haitch Conveyancing based on their 5 star reviews and their quick response and transparent... pricing.Celal and Halil reviewed couple of contracts for me and always pointed out important matters and provided change feedback in timely and consistent manner. When I found the one, Celal has reviewed the contract very promptly and kept me updated with all the progress during settlement period. Everything was calculated correctly and he ensured all involved parties and agencies are also informed. I cant thank enough to Celal and Halil for their service and making this home buying process as easy as.I strongly recommend Haitch Conveyancing to anyone in Victoria, Australia for all property matters.read more
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I utilised Haitch Conveyancing for my first property purchase and they were nothing short of brilliant. They were... thorough, prompt, always had time for me, and explained things in ways I easily understood. The whole team were amazing. I'd recommend them to anyone looking for conveyancing services in Melbourne, I wouldn't go with anyone else.read more
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20:10 10 Mar 20
Halil and team were nothing short of amazing! Answering queries within hours and having everything settled on time and... without hiccup.Will be using Haitch for all future settlements. Thanks again.read more
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Haitch Conveyancing has provided legal services for us for a property settlement in Melbourne. Their service was very... personalized, on - time and flawless. I was able to reach them whenever i had questions and each time they took their time to explain all the relevant details to me. I would never work with any other law office for conveyancing ever again. I recommend Haitch to every Victorian.read more
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The team was fantastic, easy to deal with, everything was done electronically and via email. Can call at any time and... receive an answer to your questions.read more
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08:14 26 Feb 20
The Team at Haitch Conveyancing took care of conveyancing in a friendly and efficient manner.
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Halil & Katarina have assisted me with my property purchase. They are efficient & easily approachable. Replies to... email are very prompt. Highly recommended for their services.read more
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10:40 10 Dec 19
Friendly, helpful and experienced team who is very approachable and supportive. Thank you for helping through with my... first home purchase!read more
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The service was friendly and professionally. Highly recommended.
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Halil assisted me with my property sale. He is very approachable and efficient with his work. Very highly recommended... and fairly priced.read more
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Efficient team. They made our conveyancing process very easy
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Haitch Conveyancing act on my behalf as vendor. There were 2 townhouses both has settled on time perfectly. even though... there were some issues with the purchaser's bank etc. But Halil made it happened and both settled smoothly. Great service and highly recommended.read more
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Halil has been immensely patient and helpful.
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09:40 19 Jul 19
Haitch Legal did an excellent job taking care of our property purchase settlement. They made the whole process seem... seamless. Halil and Katarina were always patient and accessible and willing to answer any question I had. Very reasonably priced too. Will use again.read more
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5 stars for Halil Gokler and his professional team of lawyers/conveyances.
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Halil & Katarina are approachable with queries. We use them for all our business dealings. Would highly recommend to... all !!!read more
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Highly recommended! Halil assisted us through our conveyancing and always replied to our emails and questions... promptly. His fees are also very reasonable and explained the conveyancing process to us. Halil and his team are very friendly and professional. We would use his service again.read more
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Halil and Katerina were brilliant. Very responsive and patient with all our questions. Highly recommend.
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Excellent service with very cordial staff . Thank you for your support and assistance.
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We use Halil and refer our clients to him. We get good feedback. Great service with prompt response times at a... reasonable price. Highly recommend Halil and his team at Haitch legal. Thank You Halil from Demir & Co Accountants.read more
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