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A buyer of new residential premises or potential residential land in Australia must withhold part of the purchase price and pay it directly to the Australian Taxation Office at settlement. The regime has applied to contracts entered into since 1 July 2018. It sits in the Taxation Administration Act 1953 (Cth) and operates alongside the A New Tax System (Goods and Services Tax) Act 1999 (Cth). Parliament introduced it because some developers were collecting GST in the sale price and then winding up the selling entity before remitting the tax. The response was to move the payment obligation to the buyer.
For most buyers, GST withholding is a settlement step handled by their solicitor or conveyancer. For developers, it is a cash-flow question that belongs in every feasibility model and every facility agreement. For both sides, it creates real exposure when the paperwork is wrong.
How the withholding regime works
Where a sale is caught, the buyer must withhold a set share of the contract price and pay that amount to the ATO on or before settlement. The seller receives the balance of the price in the usual way and later receives a credit for the withheld amount when the ATO processes the seller’s activity statement for the relevant period.
The regime does not impose additional tax. The seller’s underlying GST liability on the sale is unchanged. What changes is the path the money takes. The GST component travels from the buyer to the ATO directly and no longer passes through the seller’s bank account.
The withholding amount is calculated on the contract price in the standard case. A lower percentage applies where the margin scheme is used, reflecting the reduced GST liability on margin scheme sales. The applicable rates should be confirmed at the time of contract, because the calculation, the treatment of settlement adjustments and any margin scheme election all interact.
Which sales are caught
Two categories of property attract the withholding obligation.
- New residential premises. These are premises that have not previously been sold as residential premises. House and land packages, new townhouses and off the plan apartments are the common examples. Premises created through the substantial renovation of an existing building are excluded from withholding, as are commercial residential premises such as hotels.
- Potential residential land. This captures land in a subdivision that could lawfully be used for residential purposes and does not contain a building in commercial use. Vacant lots in a residential estate are the usual example. A sale to a buyer that is registered for GST and acquires the land for a creditable business purpose is excluded.
Established homes and existing apartments do not attract withholding. Commercial property does not attract withholding. The difficult classification questions cluster around the edges: renovated buildings, mixed use projects, subdivided englobo land and sales between developers. Those transactions justify specific advice before the contract is signed.
The supplier notification
The seller side obligation is broader than most people expect. Almost every seller of residential premises or potential residential land must give the buyer a written notice before settlement stating whether the buyer is required to withhold. Where withholding applies, the notice must also set out the seller’s name and ABN, the amount to withhold and when it is payable. The obligation extends to established homes, even though the notice in that case simply states that no withholding is required.
Standard form contracts in Queensland make provision for the notice, which is why it is usually dealt with inside the contract rather than as a separate document. Penalties can apply to a seller who fails to give the notice or gives an incorrect one, so it deserves the same attention as any other contract disclosure. The obligation sits alongside the broader duties Queensland sellers now carry under the Queensland seller disclosure scheme.
The notice matters to the buyer as well. A buyer who reasonably relies on a seller notice stating that no withholding is required will generally be protected if that statement turns out to be wrong. A buyer who ignores an obvious warning sign will not be protected.
What happens at settlement
The mechanics run through two ATO online forms. The first is lodged before settlement, notifies the ATO of the transaction and generates the reference numbers needed to make the payment. The second confirms the settlement date. In an electronic settlement through a platform such as PEXA, the withholding payment is set up as a line item in the financial settlement schedule and flows to the ATO automatically when settlement completes. In a paper settlement, the buyer typically hands over a bank cheque in favour of the ATO, which the seller’s solicitor undertakes to deliver.
Buyers and their representatives should verify the payment destination with the same care as any other settlement payment. Settlement funds are a known target for fraud, and a redirected withholding payment causes the same damage as any other misdirected settlement money. The same verification steps that stop payment redirection fraud at property settlement apply here.
Once the payment reaches the ATO, the buyer’s obligation is discharged. The seller claims its credit through the activity statement in the ordinary course.
Common conveyancing errors
These are the mistakes that appear most often in files we review.
- No notice, or a defective notice. The seller gives no withholding notice at all, or gives one that misstates the position or omits required details. This exposes the seller to penalties and can leave the buyer uncertain about its obligations on the eve of settlement.
- Misclassifying the property. Missing withholding on vacant subdivision lots is the classic error. The land is not new premises in the everyday sense, yet it is squarely caught as potential residential land. The reverse error also occurs, where substantially renovated premises are treated as caught when they are excluded.
- Calculating on the wrong figure. The withholding amount is generally calculated on the contract price, and ordinary settlement adjustments are disregarded. Files that calculate on the adjusted settlement figure produce underpayments or overpayments that then need correcting with the ATO.
- Margin scheme mismatches. The contract says one thing about the margin scheme and the notice says another, or the standard rate is withheld on a margin scheme sale. The rate applied must match the election actually made.
- Forms lodged late or not at all. Without the first form there are no payment reference numbers, and settlement is delayed while they are obtained on the day.
- Paying the full price to the seller. A buyer who settles without withholding remains exposed to a penalty of broadly the amount that should have been withheld, and recovering the money from the seller after settlement can be slow or impossible.
- Wrong supplier details. Trust and partnership structures cause credits to be misallocated when the ABN on the forms belongs to the wrong entity. The details on the notice, the forms and the activity statement must all line up.
Cash-flow implications for developers
Before the regime commenced, a developer received the full price at settlement and remitted GST through its next activity statement, sometimes months later. That float no longer exists. The GST component now leaves each sale at settlement, lot by lot, and comes back only as a credit through the activity statement cycle.
Three practical consequences follow.
- Feasibility models must run on net settlement proceeds. Revenue lines that assume the gross contract price arrives at settlement overstate the cash available to repay debt and fund the next stage. The withholding should be modelled on every settlement in the sales schedule.
- Margin scheme sales often over-withhold at settlement. The flat withholding rate on margin scheme sales does not always match the actual margin scheme liability on a particular lot. Where the withheld amount exceeds the liability, the difference comes back through the activity statement, but the developer funds that gap in the meantime.
- Facility agreements and release prices need to reflect the regime. A financier that calculates repayments from gross prices will find the actual proceeds at settlement lower than expected. Senior facilities, mezzanine layers and lot release prices should all be negotiated against realistic net proceeds, and the treatment of the ATO credit when it lands should be agreed in advance.
Developers selling off the plan in Queensland are also managing the contract and disclosure changes introduced by the Property Law Act 2023 (Qld).
Frequently asked questions
Does GST withholding apply when I buy an established home?
No withholding is required on an established home, but the seller must still give the buyer a written notice stating that no withholding applies. Standard contracts usually include this notice. Penalties can apply to a seller who omits it or gets it wrong, so it should never be skipped.
Who is liable if the withholding amount is not paid to the ATO?
The obligation to withhold and pay rests with the buyer. A buyer who pays the full price to the seller without withholding can face a penalty of broadly the amount that should have been withheld. A buyer who reasonably relied on a seller notice stating that no withholding was required will generally be protected.
Does the seller lose money because of GST withholding?
The regime does not increase the seller’s overall tax. The seller receives a credit for the withheld amount when its activity statement for the period is processed. The real effect is on timing, because the GST component of the price no longer passes through the seller’s hands at settlement.
Does GST withholding apply to commercial property?
Commercial premises such as offices, shops and warehouses are outside the regime, and so are commercial residential premises such as hotels. Sales of potential residential land to a GST-registered buyer acquiring the land for a creditable business purpose are also excluded, although the classification should be checked carefully on subdivision sales.
Every transaction turns on its own facts, and rates, forms and administrative practice change over time. If you are buying, selling or developing property and want the GST withholding position confirmed for your transaction, speak with the property and development team at GRM LAW.
Disclaimer: This is general information only and is not legal advice. For advice on your circumstances, contact GRM LAW.
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