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Why am I paying the Developer Seller’s withholding tax when purchasing a residential property?

Seller’s GST obligations 

From 1 July 2018 the government introduced a new GST withholding system when purchasing new residential property or potential residential land.   These changes have been made in an effort to prevent property developers who are selling these types of properties from failing to pay the GST collected on the sale to the Australian Taxation Office (ATO). 

Sellers’s notification obligation

To help Buyers meet obligations, the Seller must notify the Buyers if they will be required to make a payment under the withholding laws.

Retaining funds at settlement 

As part of the changes, if GST is required to be withheld and paid to the ATO, the Buyers are responsible for paying this amount to the ATO. This is not only a legislative requirement but usually a term of the contract. 

The amount to be withheld will generally be either 10% of the contract purchase price or if the margin scheme applies, then 7% of the contract purchase price should be withheld. 

The amount of withholding tax is not paid in addition to the purchase price but paid from the Seller’s funds which are received at settlement.   

Penalties

There are penalties for both the Seller and Buyer in failing to comply with their obligations. If a Buyer fails to do this, they may be required to pay a penalty to the ATO equal to the amount of the GST required to be withheld.

If this might apply to you or you are unsure of your obligations, please contact our experienced team at Marino Lawyers to guide you through this process.