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  • Transitional arrangements for property contracts entered into before 1 July 2018

    The new notification and withholding requirements do not apply to contracts:

    • entered into before 1 July 2018
    • where any consideration for the supply (other than a deposit) is provided before 1 July 2020.

    There is also transitional relief for certain property development agreements (PDAs) between land owners and developers entered into prior to 1 July 2018.

    Under these PDAs there may be an agreed distribution or ‘waterfall’ payment arrangement, which provides for how the consideration for the supply of the developed property is to be distributed amongst the land owner and other entities that have participated in the development. Typically PDAs make provision for how the supplier's GST liability is to be discharged. The transitional provisions are designed to ensure that parties to these pre-existing arrangements are not advantaged or disadvantaged by the introduction of the withholding obligation.

    Important things to be aware of

    • A deposit or security paid on exchange of contracts is not consideration for the supply (within the meaning of the GST law). A deposit becomes consideration when it is either released to the supplier or forfeited.
    • The time when a contract is 'entered into' is based on general contract law. A contract for the sale of a property is not entered into before 1 July 2018 if there is only an option granted to buy or sell the property. In most cases it will be necessary to look at the date at which that option is exercised to work out whether the transitional arrangements apply or not.

    Example 1: Transitional arrangements apply

    On 11 May 2018, Rachael enters into a contract to purchase a new home unit from developer WatsonHomeCo for a contract price of $650,000. Rachael pays a 10% deposit of $65,000. The supply is not subject to the margin scheme.

    Settlement occurred on 31 May 2019, at which time the balance of the contract price ($585,000) was paid to WatsonHomeCo.

    The transitional rules apply to the contract and, as a result, WatsonHomeCo is not required to give a notice about the withholding requirements to Rachael, and Rachael is not required to withhold an amount.

    WatsonHomeCo will disclose their GST liability on the supply to us when they lodge their next BAS in July 2019.

    End of example

     

    Example 2: Transitional arrangements do not apply

    Assume the same facts in example 1, except settlement occurs on 2 July 2020.The transitional rules would not apply.

    WatsonHomeCo would be required to notify Rachael that she has to withhold $59,090 (1/11th of $650,000) and pay it to us at settlement.

    Rachael would be required to lodge two online forms to us.

    At settlement, on 2 July 2020, Rachael withholds and remits $59,090 to us and pays WatsonHomeCo the balance of the contract price being $525,910.

    When WatsonHomeCo lodge their next BAS, the withheld amount of $59,090 is credited against their GST liability on the supply.

    End of example

     

    Example 3: Transitional arrangements apply

    Ben enters into a contract with Canny Developments on 22 June 2018 to purchase a new apartment for $750,000 and pays a deposit of $75,000. The margin scheme is not used.

    Following delays in completing the development, settlement takes place on 15 March 2020 at which time Ben pays the balance of the contract price and releases the deposit.

    Since the consideration paid under the contract (other than the deposit) is paid within the transitional period, Canny Developments is not required to give a notice about the withholding requirements to Ben and he is not required to withhold an amount.

    Ben pays the purchase price to Canny Developments and Canny Developments discloses its GST liability on the supply to us at the time it lodges its next BAS.

    End of example

     

    Example 4: Transitional arrangements do not apply

    Assume the same facts in example 3; except completion of the project and settlement is delayed by a further six months.

    The first consideration paid under the contract (other than the deposit) therefore occurs on 15 September 2020.

    As the first payment is made after 1 July 2020, Canny Developments will be required to provide Ben with a written notification that a withholding obligation applies. The notification must also state that the withholding amount is $68,181 (1/11th of $750,000) and that it must be paid to us at settlement.

    Ben will be required to lodge two online forms to us. On settlement, Ben pays the withheld amount of $68,181 directly to us to be credited to Canny Developments when it lodges its next BAS.

    End of example
      Last modified: 08 Aug 2018QC 55431