2 July 2018
And so it begins…
The GST Withholding regime commenced yesterday, so purchasers exchanging from now on will be required to withhold an amount for GST when they acquire most new residential premises and potential residential land.
Due to the transitional provisions, GST withholding will not apply where the contract was entered into prior to 1 July 2018 and the first payment (other than any consideration paid as a deposit) is provided before 1 July 2020.
Law Companion Ruling LCR 2018/4 (LCR)
The LCR for this measure “Purchaser's obligation to pay an amount for GST on taxable supplies of certain real property” was finalised and published by the ATO on 27 June 2018. There are no (further) surprises in the LCR but there are two key issues that may have practical implications.
GST withheld on "contract price"
GST withholding can be calculated on the “contract price” rather than the “price” for GST purposes so long as it is equal to the price subject to “normal adjustments” that apply on completion of transactions of that kind”. Given the simplicity and certainty of using the “contract price” (and most GST withholding clauses using that concept), we had hoped that “normal adjustments” would be interpreted to include amounts for discounts or variations for finishes. However, the LCR confirms the Commissioner’s view that such adjustments are not part of the “normal adjustments to contract price”.
In theory, this means that any adjustments to price as a consequence of such variations will require a new notification from the vendor based on the adjusted “contract price”.
In our discussions, the ATO has indicated that this is an area where there may be some room for manoeuvre in practice – watch this space for a new Practical Compliance Guide.
Incorrectly paid amounts
The final LCR clarifies a concern arising from the earlier draft – a vendor can claim a refund (or it they don’t, then they can get a withholding credit) if the purchaser incorrectly pays or overpays GST withholding. This confirmation avoids vendors having to call off completion until the purchaser gets a refund for such incorrect or overpayments in order to pay the full contract price on settlement.
A link to LCR 2018/4 can be found here.
The LCR does not provide any further clarification regarding whether sales of manufactured homes should be subject to purchaser withholding. Operators in this area will be relying upon the Explanatory Memorandum, legislative headings and express statements made by Treasury during the consultation process for the new legislation that the withholding should not apply to those sales.
New forms for purchasers
The long anticipated forms for purchasers to complete in the GST withholding process were published on 29 June 2018. The two forms are:
- GST property settlement withholding notification; and
- GST property settlement date confirmation.
Changes from early drafts means that some standard “Vendor Notifications” require information that is not necessary (e.g. the vendor’s email address). Links to the forms and detailed instructions regarding their completion can be found here on the ATO's website.