GST Withholding at Settlement for Melbourne New Builds

The GST clause can look alarming, especially when you're already juggling finance approval, duty, PEXA payments and settlement timing.

The short answer: If you buy a brand-new residential property or certain vacant subdivided residential land from a GST-registered developer, you usually must withhold part of the contract price at settlement and pay it directly to the Australian Taxation Office under section 14-250 of Schedule 1 to the Taxation Administration Act 1953 (Cth). For a fully taxable supply the withholding amount is 1/11th of the contract price; if the margin scheme applies, it is usually 7 per cent. Existing residential homes are generally input taxed, so GST withholding does not apply, but mistakes can still be costly: 100 Commonwealth penalty units can currently equal $33,000 for an individual, and 500 units can equal $165,000 for a company.

What is GST withholding at settlement?

GST withholding at settlement means the buyer sends the GST portion of a new residential property sale straight to the ATO at settlement. The vendor receives the balance, then accounts for GST through its own tax reporting.

The rule started on 1 July 2018 to reduce the risk of developers collecting GST in the sale price and failing to pass it on. For buyers, the key point is simple: the GST amount is usually carved out of the price you are already paying, not added on top.

This sits within the broader rules for GST on residential property, where new homes and existing homes are treated differently. Your conveyancer checks whether withholding applies, lodges the ATO forms and sets up the ATO payment in the settlement workspace.

Which Melbourne properties trigger GST withholding?

GST withholding usually applies when you buy new residential premises or potential residential land from a seller who is registered, or required to be registered, for GST. That is why the rule comes up so often in developer sales, house-and-land estates and off-the-plan apartment projects.

For Melbourne buyers, the common examples are a newly built apartment sold for the first time, a completed townhouse in a new development, a turnkey house in a new estate, or vacant land in a registered residential subdivision where the buyer is not registered for GST and is buying for private use.

If you're buying an established weatherboard in Preston, a 1970s unit in Box Hill or a family home in Glen Waverley from private sellers, GST withholding usually does not apply. If you're buying a new apartment near Southern Cross Station or a vacant lot in Tarneit, Mickleham, Wollert or Officer, it needs to be checked before you sign.

One trap: new residential premises created only through substantial renovations are not always treated the same way under the GST withholding rules. If the property is a renovated warehouse apartment or a mixed-use conversion, have the contract reviewed before you commit.

Does GST withholding apply to off-the-plan apartments?

Yes, GST withholding commonly applies to off-the-plan apartments in Melbourne because the first sale by a developer is usually a taxable supply of new residential premises. This is why GST clauses appear in so many developer contracts for apartments, units and new townhouses.

In a typical off-the-plan conveyancing in Melbourne purchase, you sign the contract well before settlement. Months, or even years, later the plan of subdivision is registered, the occupancy documents are issued and settlement is called. That is when the GST withholding process becomes active.

The long gap between signing and settlement is where errors can creep in. The supplier name, ABN, withholding rate and dollar amount should all be checked again before funds are released.

How much GST withholding do you pay?

The withholding amount is usually one of three figures. The correct amount depends on how the sale is treated for GST.

1/11th of the contract price for a fully taxable supply.
7 per cent of the contract price where the margin scheme applies.
10 per cent of the GST-exclusive market value for certain below-market sales between associates.

For most Melbourne first home buyers, the first two are the ones to watch. On a $700,000 fully taxable new apartment, 1/11th is $63,636 when rounded down to the nearest whole dollar. If the margin scheme applies, 7 per cent on the same price is $49,000. The buyer should not pick the rate; it should be stated in the vendor’s written GST notice and checked against the contract.

Remember that land transfer duty is separate from GST withholding. Off-the-plan buyers may also be considering the off-the-plan duty concession, but that is a Victorian duty issue, not the Commonwealth GST withholding payment.

What should the vendor’s GST withholding notice say?

The vendor must give a written notice telling the buyer whether GST withholding is required. If withholding is required, the notice should state the supplier details, ABN, amount to be paid to the ATO and when payment is due.

In a Melbourne new-build contract, the notice is often built into the contract or included with the contract pack. It may sit near the tax information page, in a special condition, or in a schedule called ‘GST withholding’ or ‘residential withholding payment’.

Before settlement, check whether the notice says withholding applies, whether the rate is 1/11th or 7 per cent, whether the dollar figure matches the contract price, whether the vendor’s legal name and ABN match the contract, and whether all buyers are named correctly.

This GST notice is separate from the Section 32 vendor statement, but buyers often review them together because both form part of the pre-signing contract pack. In our practice, we’ve seen stale GST notices left inside developer contracts after a project has been marketed for months. A quick ABN and rate check can prevent a settlement-day scramble.

What are Form 1 and Form 2 for GST withholding?

There are two ATO forms used for GST withholding at settlement. Your conveyancer usually completes them once the contract and vendor notice have been checked.

Form 1 is the GST property settlement withholding notification. It tells the ATO that the buyer has a withholding obligation and produces the Lodgement Reference Number and Payment Reference Number needed for payment.

Form 2 is the GST property settlement date confirmation. It confirms the settlement date and records the payment process. We prefer Form 1 to be prepared several business days before settlement where possible, so buyer name issues or wrong reference details can be fixed before PEXA is ready to settle.

What happens in PEXA when GST withholding applies?

At settlement, the withholding amount is directed to the ATO from the available settlement funds. The buyer does not usually make a separate personal payment outside the settlement process.

A typical new-build settlement works like this:

Your lender provides loan funds into PEXA.
Your deposit and any extra buyer funds are accounted for.
The GST withholding amount is listed as an ATO payment using the correct reference numbers.
The vendor receives the balance, after lender payouts and usual adjustments.
The transfer is lodged for registration with Land Use Victoria.
Form 2 confirms the settlement date.

This is why transferring funds for settlement must be handled carefully. A wrong reference number, missing buyer name or late Form 1 can turn a routine settlement into a stressful last-minute fix.

What if the vendor does not give a GST notice?

If the vendor does not give a clear GST notice, contact your conveyancer straight away. The buyer can still carry the risk if the required withholding is not paid to the ATO.

Your conveyancer may check the contract, supplier details, ABN status, property type and any developer correspondence, then request a corrected notice from the vendor’s representative. Do not treat silence as a sign that GST withholding does not apply. A missing or defective notice is a vendor problem, but the buyer’s settlement still needs to be protected.

Five GST withholding traps Melbourne buyers should avoid

Most GST withholding problems are administrative, not dramatic. They still matter because the ATO payment has to match the correct buyer, property and reference numbers.

Assuming GST is only the vendor’s issue. The buyer is the person who must pay the withholding amount to the ATO when the rule applies.
Missing the margin scheme wording. A contract and notice should make clear whether the rate is 1/11th or 7 per cent.
Relying on an old ABN. Developers often use separate entities for separate projects. The supplier named in the contract should match the notice.
Leaving one buyer off the ATO form. If two people are buying, both should be included correctly.
Waiting until settlement morning. Form 1 can be lodged any time after contract and supplier notification are in hand. Leaving it too late invites avoidable stress.

Frequently Asked Questions

Do first home buyers pay GST on a new house in Victoria?

GST is usually built into the contract price for a new residential property sold by a GST-registered developer, so it is not normally an extra 10 per cent added at settlement. The buyer’s role is to withhold the correct GST amount from the price and pay it to the ATO at settlement. Established homes usually do not attract GST.

Do you have to pay GST on new residential property in Australia?

Yes, GST generally applies to new residential premises sold by a GST-registered seller as part of their enterprise. Under the GST withholding at settlement scheme, the buyer usually pays the withholding amount directly to the ATO from the contract price. Existing residential property is usually input taxed, so the same withholding rule does not apply.

What is the GST withholding form for property?

There are two online ATO forms for GST withholding on property. Form 1 notifies the ATO that a buyer has a withholding obligation and produces the reference numbers for payment. Form 2 confirms the settlement date and helps record that the withholding process has been completed.

Who pays the GST at settlement?

The buyer pays the GST withholding amount directly to the ATO at settlement when the rule applies. The vendor receives the balance of the contract price and deals with its own GST reporting later. Your conveyancer usually manages the payment through PEXA.

How much GST withholding applies to an off-the-plan apartment?

For a fully taxable off-the-plan apartment sale, GST withholding is usually 1/11th of the contract price. If the vendor uses the margin scheme, the withholding amount is usually 7 per cent of the contract price. The vendor’s written GST notice should state the correct amount.

Does GST withholding apply to existing homes?

No, GST withholding does not usually apply to existing residential homes because their sale is generally input taxed. A private resale of an established apartment, unit or house in Melbourne is usually outside the withholding scheme. Buyers should still check the contract if the property is unusual, mixed-use or sold by a GST-registered entity.

What happens if the buyer fails to lodge Form 1?

If Form 1 is not lodged, the ATO may not have the reference details needed to match the GST withholding payment. The buyer can be exposed to the withholding amount and possible penalties if payment is not made properly. This is why conveyancers usually prepare Form 1 before settlement day.

About the Pearson Chambers Conveyancing team

The Pearson Chambers Conveyancing team works with Melbourne buyers across new apartments, townhouses, house-and-land purchases and established homes. We handle first-home-buyer settlements daily and focus on making contract reviews, settlement funds and disclosure documents easier to understand. GST withholding is one of the checks our team deals with whenever a client is buying a new build or subdivided residential land.

Sources we consulted

Need help with GST withholding at settlement?

If you're buying an off-the-plan apartment, a newly built townhouse or a vacant subdivided lot in Melbourne, it is worth having the GST clauses checked before settlement pressure builds. Pearson Chambers Conveyancing offers a complimentary Section 32 contract review, including a review of GST withholding notices and settlement payment requirements.

Email contact@pearsonchambers.com.au to speak with the team.

General information only, current as at the date of publication. Victorian conveyancing rules and legislation change frequently. Please contact the Pearson Chambers Conveyancing team for advice on your specific contract.