The new GST withholding regime for new residential property has now kicked in, with one mid-tier noting its administratively cumbersome nature and potential to catch out the average “mum-and-dad” taxpayer.
Mum-and-dad clients caught out by new property, GST rules
Since 1 July, purchasers of new residential premises or potential residential land will be required to withhold an amount from the price for the supply, and pay that amount to the ATO on or before settlement.
The amendment is aimed as property developers who fail to remit GST to the ATO despite claiming input tax credits.
The ATO has released the two forms required to be completed by purchasers of new residential premises: the GST property settlement withholding notification form and the GST property settlement date confirmation.
Speaking to Accountants Daily, Pitcher Partners director Peter Quattrocchi said the two forms place a significant administrative burden on purchasers.
“The vendor has to notify the buyer that there is a withholding obligation that’s imposed on the buyer, and they have to notify the buyer of the vendor’s name, ABN, the amount to be withheld and when it has to be paid by,” said Mr Quattrocchi.
“The first form goes for approximately five pages, and it's not a simple form, there's a lot of information on there. When that form is lodged with the ATO, it generates reference numbers that the ATO can then use to cross match when payment is actually made.
“There’s an administrative process there that I’m not sure too much thought has been given into how much administrative work that is going to generate for conveyancers and lawyers that are acting for a buyer,” he added.
“When it comes to settlement, the buyer has to lodge another form with the Tax Office, and that form is shorter at about three pages, and what that does is reference back to the original payment reference numbers and lodgment numbers and notifies the Tax Office that the payment has been made.”
With an increase in paperwork, Mr Quattrocchi expects teething problems to surface at the end of the this month when the first few transactions come through.
“A lot of transactions are typically a 30 day settlement on average and that will take us to the end of July or early August where some of these will start coming through and I expect in the early few months, there will certainly be a learning curve between parties,” he said.
“I suspect in the early couple of months, it wouldn't surprise me if some transactions do go astray.
“To expect that it will be totally smooth sailing would be probably kidding ourselves.”
With penalties starting at $21,000 for vendors failing to provide a proper notification, Mr Quattrocchi says there is a potential for mum and dad sellers to be caught out even if they are selling old residential property.
“That notification requirement applies to all residential properties and practically if you go to a mum and dad example selling an old residential property where the withholding doesn't apply anyway, technically if they fail to give a notification which says you the buyer are not required to withhold, it's a technical breach of the Taxation Administration Act,” said Mr Quattrocchi.
“You can imagine the backlash of a mum-and-dad getting hit with a $21,000 fine for failing to write a notification.”
With the ATO making it clear that conveyance and real estate agents are not able to provide GST advice unless they are registered tax or BAS agents, Mr Quattrocchi believes accountants will have a significant role to play in educating clients on their respective obligations.
“At the coalface, it will come down to the lawyers and conveyancers to get those forms and do them correctly but what we’re finding with our clients is they are coming to us to get an understanding of all these rules and to help them understand,” said Mr Quattrocchi.
“It's really an education process and despite the publicity that’s out there, it will take a little while to really settle in and managing that period in the meantime will be the challenge.”