Australia Enacts New Withholding Rules for Residential Property

Australia has enacted new rules, effective July 1, 2018, requiring withholding of Goods and Services Tax (GST) on sales or long-term leases of new residential property or “potentially residential land.”

The new withholding regime is intended to reduce instances in which buyers pay GST to developers, who sometimes go out of business and do not remit it to the government. Under the new rules, the buyer will have to withhold the GST from the purchase price, and remit it before settlement. It will become part of the settlement process rather than something the seller does post-settlement. The new rules will not apply, however, to contracts entered into before July 1, 2018 so long as settlement occurs before July 1, 2020.

The withholding requirement applies to:

  • New residential premises, which generally means premises which have not previously been sold as residential premises, or where existing residential property was demolished and a new residence built in its place, but does not include homes substantially renovated but not “new.”
  • Potential residential land, which is land that is permitted for use to build residences but doesn’t yet contain any buildings.

The amount of GST withholding is:

  • 1/11th of the contract price (which is determined without taking into account any settlement adjustments) or
  • 7% of the contract price where the “margin scheme” applies. (The margin scheme is applicable to some transactions in which the developer offsets development costs in determining GST.)

The buyer is required to remit the GST to the Australian Tax Office (ATO) on or before the settlement date. Significant penalties apply to failures to do so.

How This Will Impact Mobility

These new provisions will result in significant impacts:

  • Sellers must provide timely notice to buyers of GST liability.
  • Buyers must withhold and remit.
  • Additional costs may be incurred as conveyancers pass along the costs of compliance.
  • Sellers will no longer benefit from retaining the GST for some period, which may cause cash flow issues.

Worldwide ERC® members with employees in Australia will need to be aware of these new rules, which may increase the costs of home purchases there.

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