GST Withholding on residential contracts has been in place since July 2018 and it is a good time to refresh your knowledge regarding when GST Withholding applies.
GST Withholding applies where there is a sale of New Residential Premises or Potential Residential Land.
“Potential Residential Land” is land that can be used for residential purposes, but does not yet have any residential premises on it.
“New Residential Premises” are defined as properties that:
- Have not previously been sold as residential premises;
- Have not previously been the subject of a long-term lease; or
- Have been built, or contain a building that has been built, to replace demolished premises on the same land.
The following are not considered to be New Residential Premises for the purposes of GST Withholding:
- If, for at least 5 years since the premises became residential premises, the premises have been rented out;
- New residential premises created as a result of substantial renovations; and
- Existing residential properties.
Residential Contracts require the buyer to nominate whether they are registered for GST and acquiring the land for a purpose which would allow them to claim input tax credits (Creditable Purpose).
If Potential Residential Land is sold to a buyer who is acquiring the land for a creditable purpose (for example, to develop the land by constructing and selling New Residential Premises) then the property being sold is exempt from GST Withholding.
The exemption does not apply however if the property is New Residential Premises.
If GST is not withheld at settlement as required, penalties apply to both the seller and the buyer. It is therefore important that these sections of the Reference Schedule to the contract are completed accurately. We can offer assistance with completing these sections, and drafting special conditions if required (for example, where the margin scheme applies). However, when in doubt, it is best for sellers and buyers to seek advice from a person qualified to give taxation advice, such as a registered tax agent or accountant.
Find our GST Withholding Fact Sheet at this link to assist you with basic GST Withholding requirements for residential matters.