Your New Role as a Tax Collection Agent

Welcome to this week’s ponderings….

Don’t know if you noticed but we are well into the new financial year and having to contend with more government red tape on contracts and any related GST component that may or may not be involved.

It appears to be well founded in that the aim of the government is to put a stop to company practices of developers receiving the monies on new properties waiting the normal 3 months before being obliged to remit the GST component to the Government. The has been about $1.8 Billion of debt being written off through companies and individuals divesting their interests, going into liquidation, stripping the companies and avoiding their GST obligations. (Excerpt from REIQ seminar/webinar)

Fortunately, we have great reference points in real estate associations and friendly lawyers who provide us with up to date information. Today was such a day where one of those friendly lawyers sent us 24 pages of comprehensive information on a number of issues related to contracts – thankfully we were aware of just about all of the details and lacking only with refinements on the parameters around the GST issue.

Keeping you in the loop, the Government has decided to make the Buyer of a property responsible for collecting (they call it withholding) GST on their behalf rather than let the Seller declare it if they are obliged to do so.

The idea in itself is fine but the application of it can be a pain in the proverbial and has already caused concern with some clients about whether the said monies actually end up where they are supposed to.

Let’s have a looksie at the information provided by our friendly lawyer:

Buyer Section:

The Buyer needs to state in the Contract whether or not they are registered for GST and acquiring the
property for a creditable purpose. That is, if it is in the course of their business, and one which they would
usually claim back GST on. If they are not registered for GST, the answer will be ‘no’.

If they are registered for GST, they may need to seek the advice of their accountant if they are not sure whether they are acquiring it for a ‘creditable purpose’ or not.
If they are just acquiring it to live in and not in the course of their business, then it should be ‘no’.

Seller Section:

The Seller needs to notify the Buyer as to whether or not the buyer needs to withhold GST at settlement if it is:
• not new residential premises (i.e. if it has previously been sold as a residence – it will not be
new); OR
• if the Seller is not registered for GST, then they can just tick the first box – the Buyer is not required to withhold GST.
If it is new residential premises, or vacant land and the Seller is registered for GST, then the Seller
may need to tick the second box and should seek the advice of their accountant if they are not sure.

The immediate outcome is to be very sure about your GST obligations, if any, and from now on always check with your accountant and/or solicitor as according to circumstances for both sellers and buyers, this can be cumbersome and at times complicated.

I hope that gives you some more insight into contracts entered into as of the 1st July.

As an aside, I sold my home in Sydney back in 1983/84 but then it was Land Tax Withholding. Essentially the buyer held back land tax on my home – because at the time, they could.
The amount was only $250.00 but the annoying part was that I was not liable to report for land tax because it was not only my personal place of residence, but it was my only property at the time and well below the threshold for land tax reporting purposes anyway.

The second most annoying part was that the contract read something like “withheld until clearance obtained from land tax department’ funds were retained, the clearance came through, but I have never seen the amount since!

It is not about the money. As with everything, I consider it’s about the principle of the matter.

As you might imagine, I am now pretty skeptical on withholds and as a result, am inclined to check and double check on everything. Better to recommend clarity and surety over fogginess and insecurity.

However, if it alleviates the majority of us having to pay for the selfish avoidance of others through having to raise tax through other means of collecting, then it is a good thing isn’t it?

Until next time, Happy Listing, Selling and Clearly Enjoy Collecting Tax for the department…

Buying Real Estate Selling
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Your New Role as a Tax Collection Agent