GST withholding for contracts of sale entered into before 1 July 2018 and settling after 1 July 2020
Written by Omruye Koyu
New changes are coming into effect for certain contracts of sale (“contracts”) entered before 1 July 2018 that settle after 1 July 2020. These contracts will be subject to GST withholding requirements.
There are two separate issues to consider. They are as follows:
1. Does the Purchaser need to withhold GST at settlement?
2. Does the Vendor need to provide a withholding notice to the Purchaser?
When will the Purchaser need to withhold GST?
Firstly, GST will only be required in the case where the Vendor is registered or required to be registered for GST. If neither apply, then there is no GST payable, so no GST needs to be withheld by the Purchaser.
Secondly, GST withholding requirements only apply to relevant contracts or long-term leases (50 years or more). They are as follows:
Contracts entered into after 1 July 2018; or
Contracts entered into before 1 July 2018, if the first payment, after the deposit, occurs on or after 1 July 2020.
Thirdly, the relevant contracts or long-term leases to which GST withholding applies are contracts for:
New residential premises that are not:
Created through substantial renovations; or
Commercial residential premises.
Potential residential land that is included in a property subdivision plan at the time of settlement, where:
The land does not contain buildings used for residential or commercial purposes; or
The recipient is not registered for GST and does not acquire the land for a creditable purpose.
When is a Vendor withholding notice required?
A Vendor of residential premises or potential residential land must give a Purchaser a written notice stating whether GST withholding is required before settlement. It is important to note that this requirement applies to all residential land, not just new residential land, except for:
Settlement for residential premises; and
Settlement of potential residential land where the Purchaser is registered for GST and acquires the land for a creditable purpose.
This means the Vendor must give to a Purchaser a withholding notice for most existing residential land even though it will say that no withholding is required.
If you have any questions regarding this new development to GST withholding, we are happy to assist you with any queries you may have. Please contact our office should you wish to obtain further information and/or advice.