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  • Transitional arrangements for property contracts before 1 July 2018

    The GST at settlement process doesn't apply to contracts:

    • entered into before 1 July 2018
    • where any payment or consideration for the supply (other than a deposit) is provided before 1 July 2020 (that is, settlement occurs before 1 July 2020).

    The time when a contract is 'entered into' is based on general contract law. This is generally where the contracts are signed and then exchanged between the supplier and purchaser. A contract for the sale of a property is not entered into 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.

    A deposit or security paid at the time of entering into a standard land contract is not yet consideration for the supply (within the meaning of the GST law). A deposit becomes consideration when it is either applied to the contract price of the property at settlement or when it is forfeited.

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

    Because the contract is entered into before 1 July 2018 and the balance of the contract price (consideration for the supply) is paid before 1 July 2020, the transitional rules apply to the contract. 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 report the GST liability on the supply to us when they lodge their next business activity statement (BAS) in July 2019.

    End of example

    Example 2: Transitional arrangements do not apply

    Assume the same facts as in example 1, except that settlement instead occurs on 2 July 2020. In this case the transitional rules will not apply.

    WatsonHomeCo will 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 will 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

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      Last modified: 22 Oct 2019QC 55431