The Government introduced the Treasury Laws Amendment (2018 Measures No 1) Bill 2018, into the Lower House of Parliament on Wednesday 7.2.2018. In Schedule 5, it proposes amendments to introduce new GST withholding provisions.
These provisions will require purchasers of ‘new residential premises’, and of ‘potential residential land’, to pay amounts to the Commissioner, to cover the supplier’s GST liability (see the proposed s14-250 of the Sch 1 to the TAA). The purchaser will fund the payment by withholding the same amount from the purchase price. Suppliers then get a credit for the s14-250 GST amount (and a refund, if too much has been withheld).
The Bill is different from the draft bill, issued for comment on 6 Nov 2017. Or, at least, it is different in some respects (see TT Article about this draft).
The new purchaser’s obligation to pay the Commissioner
The heart of the proposed changes is a new s14-250 of the TAA1 (which will be just after the CGT withholding obligations) [Sch 5, item 1 of the Bill].
- Subsection (1) makes the purchaser of relevant residential land (ie. the ‘recipient’ of such a supply) liable to pay an amount to the Commissioner, if it is not registered for GST or does not acquire it for a ‘creditable purpose’.
- This includes supplies of not only ‘new residential premises’ but also ‘potential residential land’ as defined in s195-1 of the GST Act (any land that can be used for residential purposes but does not yet, have any buildings, that are residential premises). Carved out of ‘new residential premises’, are those created through substantial renovations (because that would be hard for a purchaser to judge). It also excludes ‘commercial residential premises’. [ss(2)]
- The amount the purchaser must pay is 7% of the purchase price, if the margin scheme applies and otherwise, 1/11th of the purchase price. [ss(6)] This purchase price is the contract price, before the normal adjustments. [ss(7)]
- The purchaser must pay this amount on or before settlement (or, more precisely, the time any of the consideration, is paid, disregarding the deposit). [ss(4)]
Whilst this is phrased as an obligation for the recipient, of the land/premises, to pay the Commissioner, it still works as a ‘withholding’ regime because s16-20, of the TAA1, discharges the recipient from having to pay that amount, to the supplier.
Suppliers’ obligation to give notices to recipients (about this liability)
The Bill would also insert a new s14-255 into the TAA1, which would require suppliers of residential premises and land, to give purchasers (recipients) a notice stating whether they would have an obligation to pay the s14-250 GST amount to the Commissioner.
- This applies to suppliers of all ‘residential premises’ (not just relevant ‘new residential premises’). [ss(1)]
- It also applies to suppliers of all ‘potential residential land’. [ss(1)]
- The breadth of each of these categories, of land/premises, will have a major impact on conveyancing practices, in Australia.
- The supplier must give this notice ‘before making the supply’ (which is probably at settlement). [ss(1)]
- The notice must say, whether the recipient will have to make a s14-250 GST payment, to the Commissioner. [s14-255(1)(a)] But, note below, there is an alternative way of paying this amount (via the vendor/supplier).
- If the recipient, would have to pay a s14-250 GST amount, then the notice needs to give the supplier’s name and ABN, the amount to be paid and the date it will have to be paid.
- No notice is required for ‘commercial residential premises’ or ‘potential residential land’, if the purchaser is registered and acquires the land for a creditable purpose. [ss(2)] But, because the supplier can’t always know these details, about the recipient, there is no penalty if supplier ‘reasonably believed’ that no notice was required. [ss(7)]
- Failure to comply with this requirement will result in an a penalty of up to 100 penalty units (a penalty unit is currently $210, so the total liability would be $21,000). [ss(4)&(6)]
Relief from penalty for not paying the Commissioner (bank cheque for tax at settlement)
Section 16-30 of the TAA1, makes a person, who should have paid such an amount to the Commissioner (viz: an amount under Div 12, 12A, 13 or 14), liable to pay a penalty, equal to the same amount that should have been paid to the Commissioner. The Bill proposes, however, to make some additions to this provision to give some specific relief for this GST withholding regime. [Sch 5, item 2]
- The first, is to excuse a person, who should have paid a s14-250 GST amount to the Commissioner, if the s14-255 notice said the person didn’t have to pay the amount, and there was nothing in the contract, or other circumstances, that made it ‘unreasonable’ to believe that the statement was correct. [ss(2)]
- The second, is to excuse an indirect method of paying the s14-250 GST amount. The purchaser (recipient) and give the vendor (supplier) a bank cheque, for the specified amount, at settlement (or more strictly: the first non-deposit part of the consideration is paid). The cheque must be made payable to the Commissioner. [ss(3)]. The subsection does not say so, but it assumes that the vendor/supplier will pass this cheque on to the Commissioner (to satisfy its own GST liability). [ss(3)]
Supplier’s get credits and refunds
The supplier retains the obligation to pay the GST, on the supply, but will get a credit, for the amount paid to the Commissioner (in respect of that supply). For this purpose, a new s18-60 would be inserted, into the TAA1, giving the supplier credit for the s14-250 GST payment made by the recipient. [Sch 5, item 3]
Similarly, a supplier could be entitled to a refund, of any excess, paid by the recipient, over the supplier’s eventual GST liability. This would be under a new s18-85 of the TAA1. [Sch 5, item 4]
Date of effect
The general rule is that the provisions apply to relevant consideration paid on or after 1 July 2018 (irrespective of whether the contract of sale was made before or after that date). [Sch 5, item 26]
But for pre-1 July 2018 contracts, these rules don’t apply, if the relevant consideration is first given before 1 July 2020. [Sch 5, item 27]
This 2020 relief, however, is only for pre-1 July 2018 contracts.
For this reason, the conveyancing industry will need to have procedures need to be in place, by 1 July 2018. And this may well prove unworkable or undesirable (see related TT Article).
Study questions (answers below*)
- Does the Treasury Laws Amendment (2018 Measures No 1) Bill 2018 introduce the GST withholding provisions for new residential premises?
- Does it include the same provisions for ‘potential residential land’ (land, which can be used for residential purposes, but which does not have any buildings on it, that are ‘residential premises’)?
- Do the provisions apply to all ‘new residential premises’?
- Is the recipient’s obligation, to pay this amount, going to be in new s14-250 of the TAA1?
- Is the payment, to the Commissioner going to be 6% of the contract price, for a ‘margin scheme’ supply?
- Can the recipient, take the s14-250 GST amount out of the purchase price?
- Is there another way to the GST amount (other than directly to the Commissioner)?
- Does the s14-255 notice have to be given, whether the premises are ‘new’ or not?
- Is it enough, that the s14-255 notice incorrectly says that no GST amount is payable, for the purchaser to be excused from the 100% penalty (for not paying the GST to the Commissioner)?
- Do these provisions apply to post 30 June 2018 contracts, that settle before 1 July 2020?
6.yes(under s16-20 of the TAA1); 7.yes(BankChequeGivenToSupplier);