In this article JULIA HARTMAN, the Founder of BAN TACS – National Accountants Group explains the tax minefield that now exists for property purchasers and the potential and costly traps buyers could fall into.
There are now many ways that the Government are putting the onus on the purchaser to pay the seller’s tax. Until recently, it was mainly the top end of town that was affected but now no matter how modest your purchase is, there is likely to be a trap, even on a basic block of land.
The catch with all this is, if you don’t do the right thing you could end up paying the seller’s tax on top of the purchase price.
If the person who is selling you the property was the one who undertook the subdivision then you will have to withhold GST of 10% of the purchase price at settlement and send it to the Australian Taxation Office (ATO). The amount is only 7% if there is a margin scheme clause in the contract.
This applies to all vacant land that has zoning that will allow a residence to be built on it. So can even apply to farm land.
Now the seller is required to provide you with the information you need but if they don’t the onus is still on you to withhold. Further, even if the seller tells you there is no need to withhold the ATO have stated they will still hold you responsible under certain circumstances, refer LCR 2018/4 and Section 14-250 ANTS (GST) 1999. It is best not to accept anything less than a private ATO ruling in the seller’s name.
The only exception is if you do a search to confirm that the seller is not registered for GST and they give you a notice to say they are not required to be registered. Though verbally the ATO have said they won’t accept this exception if the seller has a business name.
If the seller wants to reduce the amount of GST you withhold to below 7% they must give you a certificate from the ATO.
This one is not something that you can rely on your conveyancer to bring to your attention, they don’t get to actually see the property you are buying though they should be able to see on the title that it has recently been subdivided.
It doesn’t matter what you intend doing with the land.
Brand new house and land package
This is a definite withhold GST of 10% at settlement and send to the ATO or 7% if there is a margin scheme clause in the contract. Obviously, you are being sold the property by someone in the property business not a private householder, otherwise the property would not be brand new. Don’t listen to any excuses. Read the discussion on vacant land above for more detail.
Is this the first time the home has been sold?
This is not necessarily a brand new home, just one that has not been sold since it was built. The first sale of a house or unit (that has not been rented out for over 5 years) will be subject to the GST withholding, discussed above, if you buy it from anyone else other than an owner occupier. This means you must withhold GST of 10% at settlement or 7% if the margin scheme applies and send it to the ATO. If this could apply to you make sure you read the detail in the vacant land section.
Is the purchase price $750,000 or more?
Then you must withhold 12.5% of the selling price and send it to the ATO, unless the seller provides you with an ATO clearance certificate. This applies to both vacant land, units and houses. This is to stop foreigners taking the money overseas and not paying their CGT. Nevertheless, this applies to all property owners. It does not matter how sure you are that they are an Australian resident, you must get that clearance certificate. If you do not withhold you will have to pay an additional 12.5% to the ATO on top of the purchase price.
Going concern clauses
Also check for going concern clauses in the contract. If there is one you are agreeing that you will be registered for GST at the time of settlement and if you ever deregister you will need to send a further 10% of the purchase price to the ATO.
If you have any questions or need clarification on any aspect please use the comments box below or call our office on 1300 888 299 to discuss the matter further.
Julia Hartman is the founder of the BAN TACS National Accountants Group which has offices on the east and south coast of Australia, from Mackay to Adelaide. You can visit Julia’s website to learn more or ask Julia a question by going to her online forum.
General Advice Warning: This blog is not designed to replace professional advice. It has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the advice, in light of your own objectives, financial situation or needs before making any decision as to what is appropriate for you.