The Australian Taxation Office has issued a reminder to SMSF trustees that they have a GST withholding obligation if they purchase new residential property. They need to make sure they have done all the paperwork.
The ATO says purchasers who have a withholding obligation must lodge two forms: a GST property settlement withholding notification using information from the supplier; and a GST property settlement date confirmation.
Purchasers must then pay the withheld amount.
GST arrangements were changed in 2018 for purchasers of new residential property. Up to 1 July 2018, GST was included in the purchase price and it was the builder or developer who remitted the GST.
The ATO was concerned that some builders failed to remit the GST, despite having claimed GST credits on their construction costs. It had identified “phoenix operators” who established special purpose companies to undertake residential developments.
The special purpose company claimed full input tax credits for GST incurred on land, construction and development costs. As no sales occurred during the development phase of the project, these credit claims triggered cash refunds from the ATO.
However, when the project was completed and the new residential premises or residential lots sold, the SPC did not remit the GST on the sales.
Since 1 July 2018, purchasers of new residential premises or new residential properties have had to remit the GST on the purchase price directly to the ATO as part of the settlement process.
Under the rules, “new residential premises” are defined as premises that have not previously been sold as residential premises, have been created through substantial renovation of a building or have been built to replace demolished premises on the same land.
In its notice to SMSF trustees, the ATO says the property vendor must provide a “supplier notification” that includes the name and ABN of all suppliers, the amount of GST to be withheld and the GST-inclusive contract price.
The ATO says a supplier’s written notice can be relied on when it states that a purchaser is not required to pay an amount to the ATO.
“However, if the purchaser of their representative knows that a supplier is registered for GST and selling new residential premises, it’s unreasonable not to withhold and pay an amount to us at settlement,” the ATO says.