Example 2 – Understanding GST Withholding Rules
Derek lives in a house in Melbourne that he's owned since May 30, 2013. He's not registered for GST. On January 12, 2020, Derek agrees to sell his house to Clarence for $1.1 million, receiving a $110,000 deposit. They set the settlement date for February 12, 2020, when Clarence will pay the remaining $990,000.
Does Derek need to tell Clarence about the sale before the settlement?
Yes, according to the rules, Derek must inform Clarence before the settlement because he's selling residential premises, and it's not related to commercial properties. This applies even if Clarence doesn't need to withhold any amount. If no withholding is required, Derek needs to clearly mention this in the notification to Clarence.
In this case, Clarence doesn't have to withhold any amount from the purchase price. Derek hasn't made a taxable supply, and the house isn't considered new residential premises or potential residential land. So, Derek has to inform Clarence that no withholding is needed under the GST rules.
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