The new GST withholding rules
Broadly, under the GST rules, a taxpayer that makes a supply of (i.e., sells) new residential premises or land is required to pay GST where the property is located in Australia, the supply is made in the course of carrying on their enterprise, and the taxpayer meets the GST registration turnover threshold of $75,000.
TAX WARNING – Isolated transaction may be subject to GST
The definition of an enterprise for GST purposes is very broad, and includes an activity “in the form of an adventure or concern in the nature of trade”. Refer to S.9-20(1)(b) of the GST Act. Under this definition, an enterprise is not restricted only to a business, and may also include an isolated transaction undertaken to make a profit. Examples of isolated transactions that may be regarded as an enterprise under S.9-20(1)(b) include:
- a taxpayer acquiring land zoned for residential purposes, with the intention of subdividing the land and selling the subdivided blocks for a profit; and
- a taxpayer constructing a house (i.e., new residential premises) on land owned for a number of years, for the purpose of selling the house for a profit.
Where a supply of new residential premises or potential residential land is subject to GST, a taxpayer must report (and pay to the ATO) their GST liability in their following Business Activity Statement (‘BAS’). In many cases, this may be up to three months after settlement (for a taxpayer that lodges BASs on a quarterly basis).