Matthew Meng, Barrister, summarises the changes in conveyancing transactions in relation to GST ahead of his upcoming presentation at the 15th Annual Conveyancing Conference on Wednesday 25 March, where he will provide a thorough analysis into this controversy.
Practitioners are no doubt aware of the GST withholding rules applicable to transactions after 1 July 2018. The rules effectively mean that purchasers need to be the new GST police to ensure that sellers are doing the right thing.
What’s different now?
GST has traditionally been an imposition on the seller. Other than in limited situations (such as margin schemes), purchasers have generally not paid too much attention to how the seller treats the transaction for GST purposes.
The new GST withholding rules mean purchasers now need to pay utmost attention to this matter. Why?
Firstly, the new rules require purchasers to withhold an amount for GST in respect of certain transactions – such as the sale of new residential premises. The purchaser is subject to a penalty if it fails to withhold.
Secondly, the new rules require sellers to give the purchaser a written notice stating whether the purchaser is required to withhold and the amount of the withholding.
However, if the notice says no withholding is required, simply relying on this notice may not be enough for the purchaser.
Why can’t I simply rely on the seller’s GST notice?
If the notice is wrong and the purchaser is in fact required to withhold, it is only a defence to penalties for the purchaser if there was also nothing in the contract or in any other circumstances relating to the transaction that made it unreasonable for the purchaser to believe that the notice was correct.
The explanatory memorandum to the new rules states that there is no obligation on the purchaser to make additional inquiries.
Rather, purchasers need to ask themselves – what do I already know about the circumstances of the seller?
Alarm bells should ring if, for example, the seller’s notice states that the premises are not new residential premises. However, the purchaser is buying off the plan and knows it is a new home. Alternatively, the seller states that it is not carrying on an enterprise. However, the circumstances of the development indicate to the purchaser that the tax authority may take a different view.
Don’t leave it too late
These tricky questions often come to the fore as transactions get very close to settlement. If they are not addressed well ahead of time, the refusal of the purchaser to settle without a GST withholding being made may lead the seller to issue a notice of default. To prevent the seller from terminating the contract and retaining the deposit, purchaser may then need to consider whether urgent interlocutory relief in the courts is required. This happened in a case in which I recently acted– it caused significant stress and expense for both parties involved.
To prevent things from getting nasty very quickly at the end, purchasers should be comfortable with the GST position well ahead of settlement. If in doubt, specialist tax advice should be sought.
Matthew Meng is a barrister specialising in tax, where he acts for taxpayers and for the Commissioner of Taxation. He has 11 years of experience in tax litigation, as well as tax audits, reviews and disclosures for both listed groups and private clients. Matthew conducts tax proceedings in Commonwealth and State courts and tribunals and he also has tax advisory experience encompassing both Commonwealth and State taxes. Prior to joining the Victorian Bar, Matthew was a Senior Associate in the tax group at King & Wood Mallesons.
Matthew is a Senior Fellow in the Tax Group at Melbourne Law School where he lectures in the Masters program. He holds a Master of Laws specialising in tax law from the same law school. He also completed his undergraduate studies in Law and Commerce at the same university as a National Scholar, where he graduated with First Class Honours in Law. Connect with Matthew via email or LinkedIn