From 1 July 2018, a Goods and Services Tax (“GST“) withholding obligation will be imposed on purchaser of certain residential premises, including certain vacant land. Purchaser must withhold the ‘GST component’ of the sale price of affected land and pay it directly to the Commissioner instead of the seller. Transitional rules may apply for contracts signed prior to 1 July 2018.

Property developers will only be impacted by a GST withholding where they sell:

• newly constructed residential premises; or
• potential residential land subject to subdivision plan, to affected purchasers.

The withholding rules apply to both sales and long term leases (generally, granted by government for 50 years or more).

The rate of withholding is fixed at 1/11th of the contract price, or 7 percent when the margin scheme applies to the sale and the purchaser is not an associate of the seller. Purchasers must withhold these amounts from settlement funds and remit the amount directly to the Australian Taxation Office (“ATO“). So affected sellers will only ever receive the GST exclusive proceeds (or a proxy for margin scheme sales) at settlement. The amount paid to the ATO will be credited against the seller’s GST liability in its Business Activity Statement(s).