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GST at settlement – a guide for purchasers and their representatives

Buyers of new residential premises or potential residential land must withhold an amount and pay it to the ATO.

Last updated 4 July 2021

You may have a withholding obligation if you purchase or enter into a long-term lease of either:

The withholding obligation means that when settlement occurs, the purchaser pays both:

  • the withheld amount of GST direct to the ATO
  • the balance of the sale price of the property, minus the withholding amount, to the supplier.

Your supplier must provide you with information to assist you to comply with your withholding obligation. They generally do this via their representative when selling the property.

You can incur penalties if you fail to pay the required withholding amount to us.

GST at settlement started on 1 July 2018. Transitional arrangements apply to contracts entered into before this date.

See also:

Determine if you have a withholding obligation

Suppliers need to provide you with written notification (supplier notification) advising if you have a withholding obligation or not. Suppliers can incorporate the notice into the contract for sale or provide it to you as a separate notice.

You don't need to register for GST because of a withholding obligation.

Transitional arrangements apply to contracts entered into before 1 July 2018.

For more information see Properties that are included and excluded.

Supplier notification

The notice from your supplier should include:

  • the name and ABN of all suppliers
  • GST branch number (if applicable)
  • the amount you must pay to us (rounded down to the nearest dollar)
  • the date you must pay the withholding amount to us
  • GST-inclusive contract price (plus the GST inclusive market value of non-monetary consideration).

When to get a supplier notification

The supplier must provide the notice on or before the time they make the supply.

The supplier notification can be included in the sales contract or in a separate document provided before settlement. All law societies (except Northern Territory) have revised their standard land contracts to include the notification.

Multiple suppliers

If you're purchasing a property from more than one supplier, your suppliers should notify you of each supplier's share of the withholding amount.

If they don't notify you of amounts for each share of the withholding amount, you may allocate them equal shares.

Relying on a supplier notification

You don’t need to make further inquiries about the GST registration status of a supplier when both:

  • a supplier advises that a sale isn’t subject to GST (that is, the supplier isn’t registered or required to be registered for GST)
  • you have taken reasonable steps to ensure you don’t need to withhold.

We won’t retrospectively penalise you when you have acted reasonably and it’s later found that a supplier hasn’t met their notification obligations correctly.

Reasonable steps

We consider 'reasonable steps' include the following:

  • Review the sale contract and supplier notification to ensure they advise whether you’re required to withhold or not.
  • In reviewing the sale contract and withholding notification, ensure it contains the necessary information – if the notification isn't clear, seek clarification from the supplier.
  • You don’t need to search for further information, even if the notification states you’re not required to pay a withholding amount, but you must consider all information to do with the sale.
  • Once you have considered this information, determine whether you need to withhold or not.
  • If you have taken reasonable steps and made a decision to rely on the supplier notification not to withhold, but you still have some concern about the supplier, you can report your concerns about them to us.

We won’t impose penalties when you rely on supplier notification and you have taken reasonable steps to determine the notification is correct at the time.

If your supplier hasn't advised you about an error on the notification on or before settlement, you can rely on the original notification.

It is unreasonable not to withhold and pay an amount to us if you know a supplier is registered for GST and selling new residential premises not previously sold.

Information in the supplier notification changes

If the required information changes after your supplier provides the notice, they must provide you with a new notice.

This could include when a supplier discovers they should be registered for GST or for changes to the contract price due to a variation or discount that applies before settlement.

For more information see How to amend or cancel your forms.

Margin scheme

If you purchase a property and the margin scheme is applied to the sale, you can't claim a GST credit for the GST included in the price.

If you were charged the full rate of GST when you purchased a property as part of your business, generally you can claim the GST back. However, you can’t apply the margin scheme on a subsequent sale.

See also:

Complete and lodge Form one

Lodge Form one

When you have a withholding obligation, you must complete Form one: GST property settlement withholding notification online.

Form one is used to advise us of a property transaction for the supply of new residential premises or potential residential land where there is a withholding obligation, you:

  • need the information on the supplier notification to complete Form one
  • can complete and lodge Form one any time after the contract has been entered into, either  
    • up until the due date for payment of the withholding amount (usually settlement date)
    • the date the first instalment is paid, for instalment contracts (other than a deposit).
     

Purchasers can authorise a representative to lodge the forms on their behalf by giving them a signed declaration.

Administrative penalties apply if you fail to notify us there was a requirement to withhold (not lodging the online forms).

See also:

Keep Form one confirmation of lodgment

An online confirmation screen will be displayed once Form one is lodged.

The confirmation screen shows you successfully lodged your form. It shows the:

  • lodgment reference number (LRN)
  • payment reference number (PRN)
  • expected settlement date
  • total withholding payment.

A downloadable payment slip with barcode and copy of the form is available.

You can print both from the confirmation screen.

The confirmation email:

  • issues automatically to the email address you or your representative provided to us (if any)
  • provides a unique lodgment reference number (LRN) and payment reference number (PRN) and a downloadable payment slip
  • may take 24 to 48 hours to be received.

You must keep the confirmation details for when it's time to lodge Form two.

The LRN is required to lodge Form two and the PRN is used to make your payment.

See also:

Complete and lodge Form two

You must complete Form two: GST property settlement date confirmation online to confirm the settlement date with the confirmation details received when you lodged Form one.

Complete and lodge Form two for:

  • a standard land contract, either  
    • within two business days before settlement
    • on the day of settlement
    • on the next business day after settlement.
     
  • an instalment contract, either  
    • within two business days before the first instalment
    • on the day of the first instalment
    • on the next business day after the first instalment.
     

Purchasers can authorise a representative to lodge the forms on their behalf by giving them a signed declaration.

Administrative penalties apply if you fail to notify us there was a requirement to withhold (that is, by not lodging the online forms).

See also:

Paying the withholding amount

Your supplier should notify you of the withholding amount by issuing the required notice (rounded down to the nearest dollar).

When settlement occurs, you pay both:

  • the withheld amount of GST direct to us
  • the balance of the sale price of the property, minus the withholding amount, to the supplier.

The amount you must withhold and pay to us is generally either:

  • 1/11th of the contract price (for fully taxable supplies)
  • 7% of the contract price (for margin scheme supplies)
  • 10% of the GST-exclusive market value of the supply (for supplies between associates for consideration less than GST inclusive market value).

If the contract includes non-monetary consideration (for example, land swaps) the withholding amount is calculated as a proportion of the monetary consideration (including GST), plus the GST inclusive market value of the non-monetary consideration. This is the 'price for the supply' in GST law.

Administrative penalties apply if you fail to pay the withholding amount to us and general interest charges (GIC) may also apply.

See also:

Once we have received payment

Once we have received and processed your payment, we send an email to the email address listed on Form two: GST property settlement date confirmation. It may take 24 to 48 hours to receive this.

Payment of the withholding amount to us discharges you from your contractual obligation to pay your supplier the withholding amount as part of the consideration for the supply.

Ensure you keep your proof of payment.

For more information see After payment has been made.

Incorrect amount paid at settlement

Underpayment

If you underpaid the withholding amount, you must pay the balance of the amount to us as soon as you find the error.

Use the PRN received when you lodged Form one to do this.

A general interest charge (GIC) may apply to amounts that are paid late.

Overpayment

If you overpaid the withholding amount you or your supplier may be entitled to a refund.

In exceptional cases a purchaser may be entitled to the refund rather than the supplier. For example, if the overpayment relates to a non-taxable supply and the supplier has already received all they were entitled to under the contract.

Find out about How to apply for a refund.

Handing a cheque to the supplier

Rather than pay the withholding amount to us directly you may agree to give the supplier a bank cheque. This means your supplier is acting as your agent.

You must provide your supplier with:

  • your GST withholding payment slip and payment reference number (PRN)
  • a cheque made out to the Commissioner of Taxation for the withholding amount (rounded down to the nearest dollar).

You won't be discharged from your withholding obligation until your supplier has given us the cheque, although you will be protected from penalties. The purchaser is liable for the payment of the withholding amount to us. If a bank cheque is provided to the supplier at settlement you must confirm this amount has been paid to us.

If you provided an email address on Form two, we send you a confirmation email once you have made your payment. If you don't receive this email within two weeks, contact the supplier to ensure they have sent the cheque to us.

General interest charges (GIC) may apply for any amounts received late.

Example: Payment by bank cheque at settlement

On 15 September 2018, James enters into a contract with ABC Company Pty Ltd (ABC) to purchase new residential premises. ABC notifies James that a withholding obligation applies to the supply.

James completes Form one: GST property settlement withholding notification online and receives a payment reference number (PRN) and lodgment reference number (LRN).

Settlement occurs on 25 November 2018. James lodges Form two: GST property settlement date confirmation using his LRN from Form one.

At settlement, instead of paying the withholding amount directly to us, James gives ABC a bank cheque made out to the Commissioner of Taxation together with a payment slip including his PRN.

ABC mails the cheque and payment slip to us and we process it.

James is discharged from his withholding obligation when we receive and process his cheque.

James receives an email to say his withholding payment has been received.

ABC gets an email to say a credit has been allocated to their GST property credit account. ABC views this on the Online services for business GST property credit account.

ABC lodges their activity statement. A credit for the withholding amount is transferred to their activity statement account. If the credit is greater than the net amount for the period, ABC receives a refund of the difference (subject to our normal refund processes).

End of example

See also:

How to amend or cancel your forms

Both the supplier and purchaser should view the details lodged in Form one: GST property settlement withholding notification before settlement to ensure there are no changes required to the form.

If changes are identified or if the contract doesn't settle, see How to amend or cancel your forms.

How to apply for a refund

You can apply for a refund when payment to us has been made in error – for example, you made the same payment twice.

For more information see How to apply for a refund.

Compliance and penalties

Administrative penalties will apply if you:

  • fail to pay the withholding amount to us
  • failed to notify us about a requirement to withhold (that is you, by not lodging the online forms).

General interest charges (GIC) may also apply.

For more information see Compliance and penalties.

Resources

Law companion rulings

Law companion ruling LCR 2018/4 Purchaser's obligation to pay an amount for GST on taxable supplies of certain real property describes how we apply the law.

Legislation

Webinars

Online forms and information

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