GST Withholding Clause When Seller Not Registered for GST

Question

Under the new amended legislation to require buyers of new subdivision of potential residential land to withhold the GST component of the purchase price there appears to me an anomaly with the way the GST Withholding Annexure issued by real estate agents in WA.

The notice starts of with
1. Is this contract concerning the sale of new residential premises or potential residential land as defined in the GST Act? YES or No answer
2. If NO is ticked or no box is ticked (in which case the answer is deemed to be NO, then “GST Withholding Annexure” is not required to be attached to this contract.
3. If YES is ticked, then the “GST Withholdong Annexure” should be attached to this contract.

There starts my concern
Client has subdivision of one lot (previous house and land) now divided into Strata of 3 lots.
Have concluded from intention etc it was a “mere retaliation of asset” so on Capital account.

The client is not registered for GST nor the potential buyer. So one would think the first question would be is this sale subject to GST (supplier isn’t registered or required to be registered for GST)

But the first question talks about “is it concerning potential residential land” as defined by the GST Act. So one would assume YES it is, but there should be a follow on is it an exempt supply or is it not subject to GST.

I am worried if the client just ticks NO then it could be construed wrong information given as under the GST ACT it is a potential residential land”. But not caught as not taxable supply.
If they tick YES then a whole GST Withholding Annexure need filling in asking for ABN an amount of GST etc (Which is not applicable)

What is your thoughts on signing this Annexure ticked NO or perhaps adding additional notes on page like:

“Seller advises that the sale isn’t subject to GST (Seller isn’t registered or required to be registered for GST) ”

“The GST withholding regime is not applicable to the sale of subdivided residential land that constitutes the mere realisation of a capital gains tax asset by a person that is not registered for , or required to be registered for GST. (Section xxxx if you know)

Or should they just provide a separate notice and if so is there a standard format to follow.

Much Appreciated


Answer

Yep I hear you. Absolute nightmare apparently to get the GST back without lodging a BAS. I will tell you all I know but it is only theory. I would really appreciate you telling me how you go with the ruling process if you have to take that option.

Some further reading:
https://bantacs.com.au/Jblog/small-developments/#more-248 Really worth a read

https://www.ato.gov.au/law/view/document?LocID=%22COG%2FLCR20184%2FNAT%2FATO%22&PiT=99991231235958

Now to your particular circumstances.

In reality I have seen the answer to point one to be no even when it is vacant land just because the seller is just a private seller. Like you I have a problem with this. A literal reading of the question means any potential residential piece of land is caught and it should always be yes when land is sold. The problem is probably intended to be solved in the GST schedule. Where hopefully you will be able to state. Sale not subject to GST as seller is not registered for GST or required to be registered.

Now you will see in the second reading above (LCR 2018/4) paragraphs 58 and 59 cover how to give notice to the purchaser that they do not have to withhold


Vendor notification requirements

58. A vendor of residential premises or potential residential land must give a written notice to the purchaser before making the supply.[25] The notice must state whether the purchaser is required to make a payment under section 14-250 in relation to the supply.


59. This requirement applies to all vendors of residential premises and potential residential land, not only those who are registered or required to be registered for GST. If the vendor is not registered or required to be registered for GST, they simply state that the purchaser is not required to make a payment.

Apparently you simply tell them not to because you are not registered for GST! I wonder just how many solicitors will accept this when the ATO can recover the GST from the purchaser if they don’t withhold. Unfortunately if the purchaser’s solicitor is going to be cautious then your client will need to apply for an ATO ruling to say they do not have to register for GST. You might be able to talk the solicitor around by pointing out:

If you are not already registered for GST you are not required to do so just because you choose to merely realise an asset. Section 23-5 of the GST Act states that if the annual turnover of supplies you make in the normal course of your enterprise, exceed $75,000 you must register for GST. Section 185-25 excludes from the calculation of annual turnover the supply of a capital asset.

In short I am saying tick yes and give a notice that the seller is not registered for GST so GST does not apply. I look forward to hearing how it goes in real life.

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