The ATO has provided clarification for recent queries about how rebates are applied for GST at settlement and how to complete Form one for purchasers if their contracts were signed before 1 July 2018.
Calculating rebates
Rebates are a type of discount, or a reduction in price that's not a normal settlement adjustment and could include things like variations to finishing an apartment before its completion and discounts following a building report that are negotiated and apply before completion.
When these types of rebates are applied before settlement ensure:
- the contract price is reduced
- the GST withholding amount is calculated on the adjusted price.
The ATO has this example on their website about how to calculate a rebate:
On the 7 April 2020 Rachel entered into a contract to purchase a block of land from Bigtime Property Developers Pty Ltd for $275,000 with a rebate of $2,000. Rachel pays a 10% deposit of $27,500.
Bigtime Property Developers Pty Ltd (supplier) notifies Rachel that she must withhold $24,818 and pay it to the ATO at settlement. This is 1/11th of the reduced purchase price $273,000.
Rachael is required to complete and lodge the two GST at settlement online forms to the ATO.
At settlement, on 2 June 2020, Rachael must withhold and pay $24,818 to the ATO and pay Bigtime Property Developers Pty Ltd the balance of the contract price $220,682.
In summary:
- $273,000 ÷ 11% = $24,818 is the withholding amount paid to the ATO at settlement
- $273,000 − $27,500 deposit − $24818 GST = $220,682 remainder of sale price is paid to the supplier at settlement.
See the ATO website at GST at settlement – Rebates and adjustments.
Transitional arrangements and lodging Form one
What to do if your clients have contracts signed before 1 July 2018 and settlement occurs after 1 July 2020.
As it’s almost July, remember to:
- identify any contracts signed before 1 July 2018 that are for new residential property or potential residential land that are still waiting for settlement to occur
- advise these clients about their GST at settlement obligations and what they need to do
- to allow Form one to be lodged, enter 1 July 2018 as the contract date on the form.
The ATO has given us an example:
On 11 May 2018, Rachael entered into a contract to purchase a new home unit from developer Watson Home Co for a contract price of $650,000. Rachael pays a 10% deposit of $65,000.
As the supplier of the property, Watson Home Co needs to notify Rachael that she has to withhold $59,090 (1/11th of $650,000) and pay it to the ATO at settlement.
Rachael is required to complete and lodge the two online forms to the ATO. Even though she entered into the contract earlier, she enters 1 July 2018 on Form one to allow it to be lodged.
Rachael’s property is finished and the settlement date is 2 July 2020.
At settlement, on 2 July 2020, Rachael must withhold and pay $59,090 to the ATO and pay Watson Home Co the balance of the contract price (being $525,910).
You can find more information about this on the ATO website at GST at settlement – Transitional arrangements.