Originally announced as part of the 2017-2018 Federal Budget, the Government has now passed legislation significantly changing the way GST is handled on the sale of new residential property. From 1 July 2018, purchasers of new residential property must pay the GST component of the purchase price to the Australian Taxation Office (‘ATO’) directly instead of to the vendor. The Government has explained these changes are necessary to “clamp down on GST evasion in the property development sector”.

To what transactions does the new withholding scheme apply?

The GST withholding requirements apply to the sale or long-term lease (generally leases or licences for a term of at least 50 years) of the following types of real estate:

• ‘New residential premises’ that have not been created through substantial renovations of a building.  A ‘new residential premises’ is defined under the existing GST law as premises that have not previously been sold as residential premises and have not previously been the subject of a long-term lease, or contain a building that has been built to replace demolished premises on the same land;
• ‘New residential premises’ that are not ‘commercial residential premises’ (i.e. a hotel, motel, inn, hostel, boarding house, premises used to provide accommodation in connection with a school, certain ships, a marina at which one or more of the berths are occupied by ships used as residences, a caravan park, a camping ground or anything similar); and
• Land that it is permissible to use for residential purposes, but that does not contain any buildings (‘potential residential land’), and is included in a property subdivision plan (e.g. strata plan or land subdivision) and does not contain any building that is in use for a commercial purpose.In our view, the above categories will mostly affect those conveyancing transactions commonly referred to as ‘off-the-plan’ purchases.While the transitional provisions exempt any contract made before 1 July 2018 from the GST withholding requirements, they will apply to any part of the purchase price is paid after 1 July 2020. This effectively means that the withholding regime will apply to all conveyancing transactions involving the above property categories if they settle after this date regardless of the contract date.

What does a vendor need to do?

Before selling any residential property (not just new residential property in the above list), a vendor must give a prospective purchaser a written notice stating whether the purchaser will be required to make a GST withholding payment to the ATO and, if so, include the following:

• The vendor’s name and ABN;
• The amount that the purchaser will be required to pay to the ATO;
• When the purchaser will be required to pay that amount;
• If some or all of the purchase price will not be expressed as an amount of money, the GST inclusive market value of that part of the price; and
• any other matters specified in the regulations.

If the vendor fails to give the above notice, then the ATO can fine them up to $21,000.

What does a purchaser need to do?

If the purchaser is not registered for GST, they must deduct the GST component from the purchase price and pay it to the ATO on or before the date that the purchase price (other than the deposit) is paid to the vendor. In the vast majority of cases, this will be the settlement date under the contract. However, where the price is payable by instalments, the obligation to pay the full GST amount to the ATO will arise when the first instalment is due. If the purchaser fails to make the required payment to the ATO on or before settlement, the purchaser is liable for a penalty equal to the GST amount.

It is important to note that the purchaser’s obligation to make the required payment to the ATO is not dependent on the vendor giving the requisite notice as outlined above. However, the purchaser may be absolved from liability if the vendor gave them a notice stating that the premises are not new residential premises or indicating that the purchaser will not be required to pay an amount to the ATO and, at settlement, there was nothing in the contract or any other circumstances relating to the sale that made it unreasonable for the purchaser to believe that the vendor’s statement was correct.

The amount to be paid to the ATO is a percentage of the GST-inclusive purchase price specified in the contract, disregarding any usual adjustments for outgoings, and will depend on whether the vendor will be applying the margin scheme to the supply. If the margin scheme will be applied, then the rate will be 7% of the purchase price (although the Government has the power to increase this as long as it does not exceed 9%). Otherwise, the rate will be 1/11th of the purchase price.

Changes to the NSW Law Society Contract

The contract for the sale of land that is commonly used in New South Wales, which is prepared by the NSW Law Society, has been amended to reflect the new withholding scheme (called a ‘residential withholding’ payment in the contract). The main changes in the 2018 contract include:

• A new yes-no box to indicate whether or not the purchaser must make a GST withholding payment at settlement;
• A new section that sets out the particulars required to be disclosed to a purchaser. Interestingly, in relation to the amount of GST to be withheld, the NSW Law Society is advising that when a property is sold at auction and the amount is not completed, the vendor must provide all these details in a separate notice to the purchaser within 14 days of the contract date; and
• New clauses have been inserted in the standard conditions that allow the purchaser to make the required GST payment. These clauses inter alia require the purchaser to produce evidence that they have submitted the required notification form to the ATO at least five days before settlement.

Implications for purchasers and vendors

Vendors of all residential property will need to ensure they comply with the notice requirements under the new withholding scheme and purchasers must ensure they pay the GST payment when they are buying new residential property. In some cases, simply relying on the vendor’s notice will not be a sufficient excuse for the purchaser not making the required payment. A failure to comply with either requirement could see the purchaser and the vendor facing heavy penalties.

If you require assistance with a property development or conveyancing transaction, please contact HPL Law Group on (02) 9905 9500.

The post Purchasers Forced to Help Stop GST Evasion by Property Developers appeared first on HPL Law Group Sydney.

In light of the impending removal of paper certificates of title, New South Wales has recently amended the Real Property Act 1900 (NSW) (‘Act’) to allow purchasers to lodge a ‘Priority Notice’ to protect their interests in land. As part of a national transition to electronic conveyancing, priority notices have also been introduced in Victoria and South Australia, while similar notices have already existed in Queensland and Tasmania for some time.

What is a ‘Priority Notice’?

A Priority Notice is a prescribed electronic form that can only be lodged through the national electronic conveyancing platform, PEXA, from 28 November 2016. A Priority Notice can be lodged under section 74T of the Act by anyone who intends to lodge a dealing to give effect to an entitlement to a legal or equitable interest in land and any associated dealings (e.g. a mortgage or discharge or mortgage). For most Priority Notices, this will be a purchaser under a contract of sale. If the Priority Notice is in the approved form, the Registrar-General may accept the lodger’s entitlement to lodge it on face value.

Under section 74W of the Act, while a Priority Notice is current, similar to a caveat it prevents the registration of any dealing or plan relating to the land other than the following:

• A dealing specified in the Priority Notice;
• A dealing lodged with the lodger’s consent;
• A dealing in registrable form that was lodged before the Priority Notice;
• A caveat or the withdrawal or lapsing of a caveat;
• A vesting or dealing effected in accordance with an order of a court or a provision of a law of New South Wales or the Commonwealth;
• A transmission application by an executor, administrator or trustee in respect of the estate or interest of a deceased registered proprietor;
• A dealing that effects or evidences a replacement of existing trustees or the appointment of new or additional trustees;
• A notice of death;
• In relation to a mortgage, charge or covenant charge recorded or lodged in registrable form before the lodgment of the Priority Notice, a dealing effected by the mortgagee, chargee or covenant chargee in the exercise of a power of sale or other power or a right conferred by the mortgage, charge or covenant charge or by or under law; and
• In relation to a lease recorded or lodged in registrable form before the lodgment of the Priority Notice, a dealing effected by the lessee pursuant to a right conferred by the lease or by or under law.

How long does a Priority Notice last?

Once a Priority is lodged, it will last for 60 days under section 74V of the Act. If required, a lodger can apply to the Registrar-General for an extension of this period by 30 days. Provided such application is made before the expiration of the 60-day period and is in the approved form, the Registrar-General will grant the requested extension.

If the dealings specified in a Priority Notice are lodged or the 60-day period expires (subject to an extension), the Priority Notice will be automatically removed. At any time before the expiration of a Priority Notice, its lodger, a person protected by the Priority Notice or their lawyer/conveyancer can withdraw the Priority Notice under section 74X of the Act. Otherwise, the Registrar-General has the power to remove a Priority Notice if he or she is satisfied that the:

• Priority Notice has expired; or
• Priority Notice does not relate to the land to which it purports to relate; or
• dealing or dealings to which the Priority Notice relates are unlikely to be lodged or registered before it expires; or
• person who lodged the Priority Notice has not provided evidence required by the Registrar-General under section 74T(5) of the Act within the period specified by the Registrar-General.

If you require assistance with buying or selling property or electronic conveyancing, please contact HPL Lawyers on (02) 9905 9500.

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