From 1 July 2018, when buying taxable supplies of new residential premises or potential residential land, most purchasers pay at settlement both:
- the withheld amount of GST direct to us
- the balance of the sale price of the property, minus the withholding amount to the supplier.
The amount a purchaser must withhold and remit to us is:
- one eleventh of the contract price (for fully taxable supplies)
- 7% of the contract price (for margin scheme supplies)
- 10% of GST exclusive market value of the supply (for supplies between associates for a price less than GST inclusive market value).
Supplier's must still lodge their business activity statement (BAS) and report their GST liabilities or entitlements on taxable supplies of these types of properties.
Example: Withholding when a sale uses the margin scheme
BuildCo has land they acquired for $228,000 in 2009 and built a new residential house on it. The supply to Buildco used the margin scheme and Buildco can apply the margin scheme to subsequent sales as long as the purchaser agrees.
On 9 August 2018, Tom enters into a contract to purchase the new house from BuildCo for $800,000 and pays an $80,000 deposit. Tom and BuildCo have agreed in writing that the supply will be made using the margin scheme.
The contract of sale includes:
- the required supplier notification
- $56,000 (7% of $800,000) to be withheld and remitted to the ATO
- the balance of the sale to be paid to BuildCo.
The notification enables Tom's conveyancer to complete the GST property settlement withholding notification (Form one) online and get a payment reference number (PRN) and lodgment reference number (LRN).
Form one allows the amount withheld and remitted by Tom's conveyancer to be matched with BuildCo's account, once Buildco's relevant activity statement has been lodged.
Settlement occurs on 2 November 2018. At settlement, Tom's conveyancer lodges the GST settlement date confirmation (Form two) using the PRN and LRN:
- pays the balance of the house purchase price of $664,000 ($800,000 less $80,000 deposit less $56,000 GST) to BuildCo
- pays the withheld amount of $56,000 to us electronically.
BuildCo's margin scheme calculation
BuildCo's GST margin is calculated as the new house's sale price less the amount paid for acquiring the property in 2009:
- Land cost $228.000
- The margin = sale price minus land price ($800,000 − $228,000 = $572,000).
The GST amount = (margin of $572,000 × 1 ÷11 = $52,000).
BuildCo lodges their December 2018 BAS and includes at:
- Label G1 Total sales: $572,000 (the margin)
- Label 1A GST on sales: $52,000.
The $56,000 credit amount paid by Tom's conveyancer matches BuildCo's details in the supplier notification and is offset against the GST payable on the sale $52,000 when the activity statement is processed.
BuildCo receives a GST refund of $4,000 being the difference between the GST remitted by Tom's conveyancer ($56,000) and (7% of $800,000) and $52,000, which is the GST liability on the sale of the new residential premises.
End of example