Square B1 · Tax · Rules from the ATO
GST withholding at settlement
Since 1 July 2018, most buyers of new residential premises, or of potential residential land (land that could be used to build new homes), pay the GST part of the price straight to the ATO at settlement and pay the seller the balance. The seller’s part is to tell the buyer in writing, before settlement, whether withholding applies and, if it does, how much.
General information, not tax advice. Withholding is the ATO’s rule wherever the land is, and its GST at settlement pages, listed at the foot of this sheet, are the place to check.
Which sales it reaches
The ATO lists the property it applies to under two headings.
Withholding may apply to
- new residential premises: a house and land, an off-the-plan purchase, a display home, a new apartment;
- potential residential land: a lot on a plan of subdivision, and other land that could be used to build new residential premises.
It does not apply to
- premises made new by substantial renovation;
- commercial residential premises such as hotels, boarding houses and caravan parks;
- commercial property;
- residential premises no longer new, because they were sold before (or let on a long-term lease) or have been rented continuously and solely for more than 5 years;
- potential residential land sold to a GST-registered business buying it for a creditable purpose, such as developing it and selling new homes;
- potential residential land with a building on it in commercial use, such as a shop or factory where zoning allows mixed use.
The ATO adds that someone selling a family home may also be outside the obligation. Whether the sale is taxable at all depends on the questions on the GST and margin scheme sheet: a supply of new residential premises or potential residential land is taxable when the seller is registered or required to be, it is made for payment in the course of an enterprise the seller carries on, and it is not GST-free or input taxed.
How much the buyer holds back
| Kind of sale | Amount withheld |
|---|---|
| Fully taxable | 1/11th of the contract price |
| Margin scheme, where the seller is eligible | 7% of the contract price |
| Between associates, for less than the GST-inclusive market value | 10% of the GST-exclusive market value |
The parties can vary the contract price before settlement, and ordinary settlement adjustments, such as sharing council or water rates, can be disregarded. Where part of the price is not money (a land swap is the ATO’s example), the amount is worked out on the money plus the GST-inclusive market value of the rest.
The seller’s written notice
A seller of residential premises, or of potential residential land to a buyer other than a GST-registered business buying it for a creditable purpose, has to give the buyer this notice, whether withholding applies or not. If it does not, the notice has to say clearly that no withholding is required. If it does, the ATO says the notice must include:
- the name and ABN of every supplier;
- the GST branch number, if there is one;
- the amount the buyer has to withhold, rounded down to the dollar;
- when the buyer has to pay it to the ATO;
- the GST-inclusive contract price, plus the GST-inclusive market value of anything given that is not money.
The notice can be part of the contract or a separate document given before settlement, and the ATO says every law society except the Northern Territory’s has revised its standard land contract to carry it. A notice with a mistake has to be replaced with an amended one, and penalties may apply to a seller who gives no notice.
Settlement, in the ATO’s eight steps
- The seller notifies the buyerIn writing, before settlement.
- The buyer, or their representative, lodges Form oneThe GST property settlement withholding notification, any time from signing the contract until the payment is due. It returns a payment reference number and a lodgment reference number.
- Form one is confirmed by emailIf the buyer asked for emails; it can take 24 to 48 hours.
- The buyer lodges Form twoThe settlement date confirmation. On a standard land contract, within the 2 business days before settlement, on the day, or on the next business day.
- The buyer paysThe withheld amount, rounded down to the dollar, at settlement, quoting the payment reference number.
- The payment is confirmed by emailAgain only if emails were chosen.
- The seller is creditedThe amount goes into the seller’s GST property credits account, shared in proportion where there are several sellers, and the seller is emailed.
- The seller lodges a business activity statementReporting the sale at G1 and the GST on it at 1A, for the period in which settlement happened; the withheld amount itself is not reported at 1A.
The forms belong to the buyer’s side: the ATO tells property suppliers not to lodge them, and says buyers can lodge them through the PEXA e-conveyancing platform or its own online form. On an instalment contract the timing differs, with payment due by the first instalment other than a genuine deposit.
The ATO’s example on land
In the ATO’s example, a company bought a vacant residential block in 2018, registered a plan dividing it into two lots and sold one of them, without the margin scheme, to a buyer who was not carrying on an enterprise. The contract included the withholding notice, and the buyer’s solicitor lodged both forms.
- Contract price$770,000
- Less the 10% deposit$77,000
- Less the amount withheld (1/11th) and paid to the ATO$70,000
- Balance paid to the seller at settlement$623,000
The seller then reported the full $770,000 at G1 and GST of $70,000 at 1A, and was credited the $70,000 the buyer had paid.
If the credit does not appear
The ATO says to lodge a missing credit request if the credit is not in the GST property credits account within 2 weeks of settlement, and a transfer request if it went to the wrong supplier. A seller whose buyer withheld in error can ask for a refund, in writing, at least 14 days before the GST on the sale is due.
This is a different obligation from foreign resident capital gains withholding. The ATO notes that the two are often confused, that each has its own forms, and that both can apply to the same sale.