Goods and Services Tax

Main legislation

A New Tax System (Goods and Services Tax) Act 1999 (Cth). (GST Act)

Registered businesses (and other registered entities that carry on an enterprise) are responsible for collecting GST and remitting it to the ATO. Those in the supply chain are generally entitled to claim a GST credit for any GST paid in respect of their purchases (subject to some limitations and certain criteria being satisfied). However, the end consumer is not entitled to claim GST credits. Registered entities report their GST and GST credits in a business report known as a Business Activity Statement (BAS), which they are required to lodge with the ATO.

In general, GST applies to transactions that involve a supply (in any form whatsoever) of goods and services by an entity that is registered (or required to be registered) for GST, including the sale of real estate and businesses. However, there are many exempt transactions and complex rules that practitioners must understand when representing clients in these matters. It is crucial for practitioners to always assess whether GST applies to the transaction. If it does apply, they should ensure that their client is informed of the GST consequences, and that the contract and any associated documents accurately represent the client’s instructions.

Certain supplies other than goods and services can also be subject to GST, such as the provision of advice, or the creation or release from an option or obligation (such as an option to purchase).

GST claims LPLC sees usually arise during the sale of commercial or new residential land and the sale of businesses or business assets. The reasons for these claims can include:

• Legal issues. Failure to identify and advise about the payment of GST on the transaction or failing to verify the details to qualify for an exemption. For example, failing to check the registration of both the vendor and purchaser for GST to apply the going concern exemption.
  
• Simple Oversight. Failure to include appropriate clauses in the contract or to advise on the impact of such clauses if acting for a purchaser.

GST and property | Australian Tax Office

GST | LPLC

GST Checklist | LPLC

Take Steps to Avoid GST Claims | LPLC LIJ Article

LPLC provides a GST advice service. The service provides practitioners insured with LPLC with expert advice for client-related GST queries. The service is intended to cover most queries from practitioners but will not cover complex advice.

GST withholding provisions apply to contracts of real estate or long-term lease transactions in certain circumstances. Where these provisions apply, purchasers are required to withhold part of the purchase price and remit it to the ATO.

GST withholding does not apply if the vendor is neither registered nor required to be registered for GST. However, the vendor may still be required to provide a written notice to the purchaser before making a supply.

Broadly, for GST withholding to apply, the relevant sale or long-term lease must be made in the course or furtherance of an enterprise carried on by a vendor/lessor that is registered (or required to be registered) for GST and must be a supply of:

• ’new residential premises’ that have not been created through substantial renovations and are not commercial residential premises (e.g. motel — see GSTR 2012/6 for the ATO’s guidance on this definition) or
• ’potential residential land’ that is included in a property subdivision plan at the time of supply (i.e. settlement), where:
  • the land does not contain any building that is in use for a commercial purpose) and
  • the recipient (i.e. purchaser) is not registered for GST or does not acquire the land for a 'creditable purpose'.

’Potential residential land’ means land that is permissible to use for residential purposes, but that does not contain any buildings that are used for ’residential premises’.

Broadly, a purchaser acquires land for a ’creditable purpose’ to the extent that:

• the purchaser acquires the land in carrying on its enterprise (i.e. usually this means acquiring it for a business purpose)
• the land will not be used to make (or in relation to making) "input taxed” supplies
• the acquisition of the land is not of a private or domestic nature and
• the purchaser is not acquiring the land under the GST ’margin scheme’.

Various other terms are defined in the GST Act and may require careful consideration in the context of a particular client matter.

Importantly, a purchaser’s withholding obligation is generally not affected by a vendor’s failure to provide a withholding notice. Accordingly, when acting for a purchaser, practitioners should ensure their client complies with the withholding obligations even if the vendor fails to comply with the vendor notice obligations.

A vendor of residential premises or potential residential land must give a purchaser a written notice before settlement stating whether withholding is required and, if so, providing specified information. Importantly, this requirement applies to all residential land (not just new residential land) except for:

• commercial residential premises (as defined)
• potential residential land where the purchaser is registered for GST and acquires the land for a creditable purpose.

See: section14-255(2) of Schedule 1 to the Taxation Administration Act 1953 (Cth)

This means the vendor must give a withholding notice for most existing residential land even though it will say that the purchaser is not required to withhold GST.

Failure to give a required withholding notice is a strict liability offence for which a penalty may apply.

GST at settlement | Australian Tax Office

GST property settlement online forms and instructions | Australian Tax Office

GST Withholding flowchart | LPLC

• Look for the tax and duty implications associated with the transfer of real property and associated transactions (like share transfers) to alert clients and, if appropriate and required, provide advice or direct the client to seek expert advice.
• Read the guidance and the information provided to improve your understanding and awareness.
• Identify complexities beyond your expertise and refer clients for expert advice.
• Use a checklist or prompt at the start of a matter to identify tax and duty issues.
• Always check the details in the legislation and SRO guidelines before advising clients and keep records to confirm any advice given.
• Establish, update and maintain comprehensive advice letters and resources that you can adapt for each specific client matter to ensure relevant advice is given to clients and confirmed in writing.
• Maintain a focus on tax and duty in all property and property conveyancing matters.