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Common errors with new GST withholding rules for property transactions

GST withholding… The ATO has noticed some common errors made in activity statements since the introduction of “GST at settlement” on 1 July 2018.

 These new laws require purchasers to withhold GST on settlement (and pay it to the ATO directly) generally when buying ‘new residential premises’ from developers.

In particular, the new “GST at settlement” law does not affect a supplier’s obligation to lodge their activity statement and report their GST liabilities on taxable supplies in the activity statement period in which settlement occurred.

In addition, suppliers are advised not to report GST that has been withheld at settlement and paid to the ATO by the purchaser.

Instead, a credit for the amount the purchaser withheld and paid will appear on the supplier’s activity statement account once the activity statement is processed.

The amount a purchaser must withhold and pay to us is generally either:

  • 1/11th of the contract price (for fully taxable supplies)
  • 7% of the contract price (for margin scheme supplies), or
  • 10% of GST exclusive market value of the supply (for supplies between associates for consideration less than GST inclusive market value).

Purchasers do not need to register for GST just because they have a withholding requirement.

 

These rules can be very complex and confusing so please get good advice!

 

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