When a developer makes a taxable sale of new residential premises or potential residential land, the ATO says most buyers split the payment at settlement: the withheld amount of GST goes direct to the ATO, and the price less that amount goes to the developer. The rule has applied from 1 July 2018. The seller still lodges its business activity statement and reports its GST on the sale.
General informationThis sheet follows the ATO’s GST at settlement pages and its guide for purchasers, read from the seller’s side. The examples are the ATO’s, with its invented names and figures. It does not say whether withholding applies to any particular sale; the ATO’s pages listed below are the place to check.
The notice comes from the seller
The buyer’s obligation starts with the seller’s paperwork. The ATO’s building page says a seller of residential premises or potential residential land may have to give the buyer a written notice before settlement saying whether the buyer must withhold GST from the contract price and pay it to the ATO, and is still required to report the sale on its business activity statement. The notice must be given on or before the time of the sale, and can sit in the sales contract or in a separate document.
A notice is not fixed once given. If its information changes, the seller must give the buyer a new one; the ATO’s examples are a seller discovering it should be registered for GST, and a change in the contract price from a variation or discount before settlement. Where several sellers share a property, they should tell the buyer each one’s share of the withholding amount, and if they do not, the buyer may allocate equal shares.
What the buyer may rely on
The ATO’s guide for purchasers explains how far a buyer can trust a seller’s notice, and a developer’s notice is read that way. A buyer need not make further inquiries about the seller’s GST registration when the seller says the sale is not subject to GST and the buyer has taken reasonable steps. Reasonable steps, in the ATO’s list, include reviewing the contract and the notice, and asking the seller for clarification if the notice is not clear.
The ATO says it will not retrospectively penalise a buyer who acted reasonably when a seller later turns out not to have met its notice obligations correctly. A buyer who relies on a notice but still has concerns about the seller can report them to the ATO. One line is drawn plainly: it is unreasonable not to withhold if the buyer knows the seller is registered for GST and is selling new residential premises not previously sold.
The ATO’s example: a margin scheme sale
BuildCo bought land for $228,000 in 2009 in a sale that used the margin scheme, and built a new house on it. On 9 August 2018 Tom contracted to buy the house for $800,000, paid an $80,000 deposit, and agreed in writing with BuildCo that the sale would use the margin scheme. The contract carried BuildCo’s notice and set $56,000, 7% of $800,000, to be withheld; 7% of the contract price is the amount the ATO’s GST at settlement page gives for margin scheme sales (last updated 19 August 2021), and its guide for purchasers gives the same rate, generally, as at its update of 13 June 2025. Tom’s conveyancer lodged Form one online and received a payment reference number and a lodgment reference number.
At settlement, 2 November 2018
- Contract price
- $800,000
- Less the deposit
- $80,000
- Less the amount withheld and paid to the ATO
- $56,000
- Balance paid to BuildCo
- $664,000
On BuildCo’s December 2018 activity statement
- Margin: $800,000 less the 2009 land cost of $228,000
- $572,000
- GST on the margin, one-eleventh (reported at 1A)
- $52,000
- Credit from the amount Tom’s conveyancer paid
- $56,000
- Refund to BuildCo
- $4,000
Figures from the ATO’s example.
The example shows how the two halves meet. Form one is what lets the amount withheld be matched to BuildCo’s account once its activity statement is lodged. Because 7% of the price was more than the GST on the margin, BuildCo ended with a refund.
When the buyer hands over a cheque
A buyer can agree to give the seller a bank cheque instead of paying the ATO directly, and the seller then acts as the buyer’s agent. The cheque is made out to the Commissioner of Taxation, and comes with the buyer’s payment slip and payment reference number.
In the ATO’s example, ABC Company sells James new residential premises and, at settlement on 25 November 2018, takes his bank cheque and payment slip, mails them to the ATO, and is emailed when a credit lands in its GST property credit account. When ABC lodges its activity statement the credit moves across, and if it is more than the net amount for the period, ABC is refunded the difference under the ATO’s normal refund processes. The buyer is not discharged from the obligation until the seller has given the ATO the cheque, although the ATO says the buyer is protected from penalties; the buyer stays liable for the payment and must confirm it has been made.
When the amount is wrong
Paying the withholding amount to the ATO discharges the buyer from paying that amount to the seller as part of the price. If too little was paid, the buyer pays the balance as soon as the error is found, and a general interest charge may apply to amounts paid late. If too much was paid, the buyer or the seller may be entitled to a refund; the ATO says that in exceptional cases it is the buyer, for example where the overpayment relates to a sale that was not taxable and the seller has already received everything it was owed under the contract.
The ATO says both seller and buyer should view the details lodged in Form one before settlement, to check that no changes are needed, and points to its pages on amending or cancelling the forms if they are, or if the contract does not settle. A buyer can incur penalties for failing to pay the withholding amount.