GST Withholding in Queensland Property Contracts
If you buy or sell residential property in Queensland and use the standard REIQ contract, you might have come across the term “GST withholding”. Here’s a straightforward guide to what GST withholding means and why it’s important.
What is GST Withholding?
GST withholding is a requirement under Australian tax law where a buyer must withhold a portion of the purchase price from the seller and pay it directly to the Australian Taxation Office (ATO). This is part of the GST system and is designed to ensure that sellers meet their GST obligations in property sales. GST withholding is not an additional amount added on top of the purchase price, but instead comes out of the settlement proceeds payable to the seller.
When Does GST Withholding Apply?
GST withholding will apply where the seller is selling new residential property or land that could be used to build new residential property (for example, a developer selling a new unit or newly subdivided land).
GST withholding will not apply to ‘typical’ sales, where the property has already been lived and is being purchased to use as a family home.
The GST withholding provisions also do not apply where the buyer is registered for GST and is acquiring the land for a ‘credible purpose’. A credible purpose is defined by the ATO as the carrying on of a business enterprise. For example, where a buyer is purchasing vacant land from a developer to build a house with the intention of on-selling it.
What if GST withholding applies to my contract?
If the conditions of the contract indicate that GST withholding applies to the transaction, the seller will be required to give the buyer a written notice of the amount required to be withheld prior to settlement. This will usually be 1/11th of the purchase price (in some cases, this is reduced to 7%). Sellers need to consult their accountant to determine the amount required to be withheld.
The buyer will then need to notify the ATO of the amount required to be withheld. This needs to be done by completing a form on the ATO website prior to settlement. At settlement, the buyer will need to pay to the ATO the withholding amount and complete a secondary form on the ATO website confirming that the amount has been withheld.
Where GST withholding applies to the transaction, the seller will receive a credit towards their GST liability.
If either party fails to comply with their GST withholding obligations, significant financial penalties can apply. Sellers can be liable for up to $105,000.00 for a failure to comply with their notification obligations, while buyers that do not withhold can be liable for the value of the withholding amount and the interest accruing on that amount.
How can I make sure that the GST withholding questions are completed correctly?
Buyers and sellers should be aware of their GST status as well as the GST status of the other party.
If you are thinking of buying or selling property, you should speak to your accountant and your lawyer to ensure that you are well-prepared for the transaction (including making sure you are registered for GST where necessary).
We take the stress out of conveyancing by offering free contract reviews for Queensland REIQ contracts. Our property solicitors and conveyancers are highly experienced and will work with you to ensure that you meet your GST withholding obligations under the Contract. You can book a conveyancing quote and contract review with us using this link.
