GST Withholding Scheme – Defective Notices and Buyer’s Liability
By now property law practitioners across Australia are starting to get used to their new role as tax collectors courtesy of the Federal Government’s new GST withholding scheme.
Purchasers who are the recipient of a taxable supply of new or potential residential land by way of a sale or long-term lease must now withhold GST from the purchase price and remit this directly to the ATO.
Introduced to combat ‘phoenixing’ by cunning operators who would dissolve the vendor entity swiftly or shift assets around before lodging their Business Activity Statement to avoid payment of GST, the system seems fairly fool-proof. But what new risks does this new system bring with it for parties and their representatives?
We have all been made keenly aware of the penalties vendors face for failure to provide proper notification to the purchaser of their withholding requirements (up to $21,000 for individuals and $105,000 for companies) and purchasers who fail to withhold face a penalty equal to the GST amount that was not withheld.
But what is the purchaser’s liability if the vendor gives a faulty notice, or doesn’t give notice at all?
A purchaser’s liability under the new scheme is not displaced simply because of a failure by the vendor to comply with their notification requirements.
The ATO will only let a purchaser off the hook if they have relied on a notice given by the vendor and there was ‘nothing in the contract for the supply or any other circumstances relating to the supply that made it unreasonable for the purchaser to believe that the statement or indication was correct’.
What does this mean for practitioners?
The best example of this would be where a vendor has given notice that the purchase is not required to make a withholding payment for GST in relation to a supply of residential land off-the-plan. In this case, it appears obvious that the supply is a new or potential residential premises.
The direction from the ATO is that in circumstances where it is reasonable to believe that a withholding is required and the vendor has failed to properly notify, the purchaser should withhold 1/11th of the purchase price (or 7% if the Buyer has agreed to apply the margin scheme) and remit to the ATO directly (Law Companion Guide Ruling (LCR 2018/4)).
Practitioners should be wary to assess each notice received in relation to residential premises and ensure they can satisfy themselves to a reasonable level that the supply is not new or potential residential premises.