GST on New Homes: What You Need to Know
On July 1, 2018, a new law was introduced, which requires homebuyers to withhold and pay GST directly to the ATO at settlement.
Previously the vendor or property developer’s responsibility. The crackdown aims to correct unethical practices seen in the property development sector.
For those looking to buy a new home, this might seem like another burden to add to the mountain of costs associated with homeownership. However, don’t let it deter you from going after your dream home.
Despite what you may think, the new law shouldn’t significantly affect the purchase price of your new home. To make sure you’re not getting ripped off along the process, it’s important to equip yourself with the right information.
What You Need To Know
GST should be included in your purchase agreement
First of all, it’s crucial to understand that the GST shouldn’t be charged as an additional cost on top of the agreed price outlined in your contract. Instead, it should be part and parcel of the purchase agreement.
As a general guide, the amount you’ll need to withhold and pay will be:
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9.09% of the contract price (for fully taxable properties)
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7% of the contract price (for properties eligible for the margin scheme), or
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10% of GST exclusive market value of the supply (for supplies between associates for consideration less than GST inclusive market value).
You’re responsible for paying the GST to the ATO
As the purchaser, it’s now your obligation to withhold the GST on the purchase price of your new property. You should hold the fee at settlement and pay it directly by disbursement to the ATO. The rest of the purchase price, excluding GST, will then be paid to the vendor and / or property developer.
You’ll be notified of when to withhold
Property developers are required by law to notify you in writing if you, as the purchaser, will need to withhold the GST. If you do have a withholding obligation, the vendor must also let you know of the amount you’ll need to withhold, when the GST payment is due and outline details such as the supplier’s name and ABN.
It won’t apply to everybody
Paying GST at settlement will only be required for buyers and long-term lessees of new residential premises or potential residential land, including land sold as part of a house and land package before construction.
New properties resulting from renovation, even if these renovations are major works, will not be affected by these changes.
There may be some additional costs
The new laws may mean that you’ll be liable for additional costs because of increased complexities during the settlement process. This might include legal fees or finance fees. If you are liable for these fees, any additional costs MUST be modest as a majority of the conveyancing process has gone digital – saving on overhead costs.
If you find yourself required to withhold GST during your purchasing journey, remember that compliance is important but it shouldn’t leave you wracking your brain. Keep our tips in mind and you’ll be stepping foot into your new home in no time!
