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Buying property in Victoria involves more than paying the agreed price and signing a contract. Buyers also need to understand what happens at settlement, including whether GST Withholding at Settlement applies to their purchase. For certain property transactions, the buyer must pay part of the purchase price directly to the Australian Taxation Office (ATO) instead of paying the full amount to the seller. The ATO states that these rules generally apply to purchases of new residential premises and potential residential land.
This is different from other costs such as stamp duty and conveyancing fees on transfer of property. Knowing how GST withholding works can help you understand your settlement figures as well as avoid last-minute confusion.
What Is GST Withholding at Settlement?
GST withholding is a rule that applies to certain property transactions in Victoria and requires the buyer to pay a set amount from the purchase price directly to the ATO. The remaining amount is paid to the seller.
The buyer is not paying extra money on top of the property price. Instead, part of the money that would normally go to the seller is paid to the ATO.
For example, if you buy a new residential property and GST withholding applies, you may need to pay the required GST amount to the ATO at settlement. The seller then receives the balance of the purchase price.
The rule mainly affects certain sales of new residential premises and potential residential land. It does not apply to every property purchase.
5 Things Victorian Property Buyers Need to Know About GST Withholding at Settlement
Understanding how GST withholding works can help Victorian property buyers know what to expect when settlement day arrives. The rules can change based on the type of property as well as the details of the sale.
Here are five things Victorian property buyers should know about GST Withholding at Settlement.
GST Withholding Does Not Apply to Every Property Purchase
Generally, GST Withholding at Settlement applies only to certain property transactions, including the purchase of new residential premises and potential residential land. It does not apply to every property purchase.
For example, a buyer purchasing a newly built townhouse from a developer may need to withhold GST at settlement. The same requirement may not apply when purchasing an established home that has already been used as a residence.
The GST treatment can depend on the type of property as well as the nature of the sale. Buyers should therefore check the property contract and GST details before assuming that GST withholding applies to their purchase.
The Buyer Pays the GST to the ATO
The buyer needs to pay the required GST withholding amount directly to the ATO when the rules apply to the property purchase. This amount comes from the purchase price rather than being an extra cost added to the agreed property price.
The seller receives the remaining purchase amount after the required GST withholding is paid to the ATO. Because this payment is generally made at settlement, buyers should make sure the withholding amount is included in their settlement arrangements.
The Amount You Withhold Can Depend on the Sale
The amount a buyer needs to pay to the ATO can change depending on how GST applies to the property sale. The two common rates are 1/11th of the contract price when the sale is fully taxable, meaning the seller charges GST on the full sale, and 7% of the contract price when the margin scheme applies, which means GST is calculated based on the seller’s profit margin.
| Type of sale | General withholding amount |
| Fully taxable sale | 1/11th of the contract price |
| Margin scheme | 7% of the contract price |
For example, if you buy a new property for $700,000 and the margin scheme applies, the general GST withholding amount would be $49,000. The buyer pays this amount to the ATO, while the remaining purchase amount is paid to the seller, subject to other settlement adjustments.
Because the amount can vary, buyers should check the GST details provided for the sale rather than try to work out the amount themselves.
GST Withholding Is Different From Other Property Costs
GST withholding is only one part of the costs that may appear around settlement.
It should not be confused with:
- Stamp duty
- Conveyancing fees
- Land registration fees
- Council rate adjustments
- Other settlement adjustments
For example, stamp duty is a Victorian government tax that may apply when you acquire property. GST withholding, on the other hand, relates to GST payable on certain taxable property transactions.
Knowing what each payment is for can help you understand your settlement figures and avoid confusion about the payments you need to make.
Checking the GST Information Before Settlement Matters
Buyers should check the GST information provided by the seller before settlement so they know whether GST withholding applies and how much needs to be paid to the ATO.
The seller must provide information about whether GST withholding applies to the property and the amount the buyer needs to withhold. Buyers should check:
- Whether GST withholding applies
- The amount that needs to be paid to the ATO
- Whether the margin scheme applies
- The settlement date
Checking this information before settlement can help buyers know what to pay and avoid last-minute confusion.
Conclusion
Understanding whether GST Withholding at Settlement applies to your property purchase is one of the most important steps to take before settlement. While the process may sound complicated, the basic idea is simple. For certain property purchases, the buyer pays part of the purchase price directly to the Australian Taxation Office instead of paying the entire amount to the seller.
By understanding when GST withholding applies, how much needs to be paid and what information the seller must provide, buyers can prepare for settlement and avoid last-minute confusion.
Are you planning to buy property in Victoria and need help understanding GST withholding, settlement requirements and other property documents? Goodwill Conveyancing can help you navigate the conveyancing process and prepare for settlement.
Frequently Asked Questions
Does GST withholding apply to an established residential property?
Generally, no. Ordinary established residential properties are usually not subject to GST withholding.
Does the buyer pay GST withholding in addition to the property price?
No. The required GST withholding amount generally comes from the agreed purchase price.
How much GST does a buyer have to withhold?
For a fully taxable supply, the general amount is 1/11th of the contract price. Where the margin scheme applies, it is generally 7% of the contract price.
What happens to the rest of the purchase price?
After the required GST amount is paid to the ATO, the remaining purchase price is paid to the seller.
Can a conveyancer help with GST withholding?
Yes. A conveyancer can help review relevant property documents, settlement figures and the steps involved in completing the purchase.
Who pays GST withholding at settlement?
The buyer generally pays the required withholding amount directly to the ATO, while the remaining purchase price is paid to the seller.
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