EXAMPLE 2 – Application of the GST withholding rules
Derek owns a house in Melbourne, which he has lived in since first acquiring it on 30 May 2013. Derek is not GST-registered. On 12 January 2020, Derek enters into a contract to sell the house to Clarence (an arm’s length party) for $1.1 million. Derek receives a 10% deposit (i.e., $110,000) at this time. The terms of the contract allow for a one-month settlement period (i.e., settlement will occur on 12 February 2020), at which time Clarence is required to pay Derek the balance of $990,000 (i.e., $1.1 million less $110,000).
Is Derek required to provide a supplier notification to Clarence prior to settlement?
Under S.14-255(1) of Schedule 1, Derek must provide a supplier notification to Clarence prior to settlement as:
- he has made a supply of residential premises; and
- the supply does not relate to a supply of commercial residential premises.
Importantly, the requirement for Derek to provide a supplier notification exists regardless of whether Clarence has a withholding obligation. Where withholding does not apply to the transaction, the supplier notification must make it clear that this is the case.
In this example, Clarence is not required to withhold an amount from the purchase price under S.14-250 of Schedule 1. Derek has not made a taxable supply, nor is the house new residential premises or potential residential land. Accordingly, Derek is required to clearly state, in his supplier notification to Clarence, that no amount is required to be withheld under the GST withholding rules.