GST Withholding Tax for Buyers and Sellers: Amounts, Forms, and Penalties

GST withholding on property purchases requires the buyer, not the seller, to pay the GST component of the price directly to the Australian Taxation Office at settlement. The standard withholding is one-eleventh of the contract price, or 7% where the margin scheme applies, and it only bites on two kinds of property: new residential premises and potential residential land. Everything else in the rules — the notices, the forms, the penalties — hangs off that single mechanism.

Which Sales Are Caught

The obligation sits in Section 14-250 of Schedule 1 to the Taxation Administration Act 1953 and applies when a buyer receives a taxable supply by way of sale or long-term lease (50 years or more) of new residential premises or potential residential land.¹

New residential premises means property that has not previously been sold as a residence. House-and-land packages, off-the-plan apartments, display homes, and newly built houses being sold for the first time all fall inside.² The test is whether anyone has lived in the property as a home before this sale.

Potential residential land is subdivision land zoned for residential use that does not yet contain a building used commercially. For this land, withholding is only triggered where the buyer is not registered for GST, or is registered but is not buying for a creditable (business) purpose.¹ A developer purchasing lots to build and resell would generally not trigger withholding, because that purchase is for a creditable purpose.

What Is Excluded

Several transactions look like they should attract withholding but do not, and mistaking one for the other creates real problems at settlement.

Substantially renovated premises. These are still “new residential premises” for GST generally, but the withholding rules specifically carve them out. The seller still owes GST on the sale; the buyer just does not withhold it.²
Commercial residential premises such as hotels, boarding houses, and caravan parks.²
Residential property that has already been sold and lived in. The sale is input-taxed, so no withholding.
GST-free supplies of a going concern or GST-free farmland — no taxable supply, no withholding.¹
Sales by a vendor who is not registered for GST and is not required to be.¹

The substantial renovation exclusion is the one that trips buyers up. It is easy to assume any “new” premises attract withholding, but the legislation treats renovated stock differently from newly built stock for this purpose.

How Much to Withhold

Two rates apply, depending on how the seller is accounting for GST:

Standard (fully taxable) supply: one-eleventh of the contract price. On a $660,000 property, that is $60,000.
Margin scheme supply: 7% of the contract price. On the same $660,000 property, that is $46,200.

The margin scheme rate is lower because GST under that scheme is calculated on the developer’s margin rather than the full price. It only applies if the seller and buyer have agreed in writing that the sale is being made under the margin scheme, which is normally recorded in the contract of sale.³ With no such agreement in the contract, the one-eleventh default applies.

A genuine deposit paid at contract signing does not trigger withholding, and if that deposit is later forfeited, no withholding applies either. Structuring a payment as part of the consideration rather than a true deposit can bring the obligation forward.¹

What the Seller Must Do

Before settlement, the seller must give the buyer a written supplier notification stating whether withholding applies.² The notice is required either way, even when no withholding is needed. Where withholding does apply, the notice must include:

The name and ABN of all suppliers
The GST branch number, if applicable
The amount the buyer must withhold, rounded down to the nearest dollar
When the buyer must pay that amount to the ATO
The GST-inclusive contract price, plus the market value of any non-monetary consideration

Failing to provide the notice carries 100 penalty units for an individual and 500 penalty units for a corporate entity.¹ At the current Commonwealth penalty unit value of $330, that is $33,000 for an individual and $165,000 for a company.⁴ Those figures index on 1 July 2026.

If information in the original notice changes — for instance, the contract price is varied, or the seller realises they should have been registered for GST — a new notice must be issued. If the seller has not corrected an error by settlement day, the buyer can rely on the original notice.⁵

What the Buyer Must Do

The buyer’s job is simple to state and unforgiving in practice: withhold the correct amount from the settlement payment and pay it to the ATO on or before settlement day.² The seller receives the contract price minus the withheld amount; the ATO receives the rest directly.

That obligation sticks to you even if the seller fails to send a notice. If you know the seller is registered for GST and is selling new residential premises that have not been previously sold, the ATO considers it unreasonable not to withhold.² Conveyancers and solicitors usually run the mechanics, but the legal responsibility is the purchaser’s.

For off-the-plan purchases where some details, like the final property address, are not available at contract signing, lodge the initial form with the information you have and update it closer to settlement.²

Lodging the Forms and Paying

Two online forms go through the ATO’s GST property settlement system.⁶

Form one, the GST property settlement withholding notification, captures the supplier’s name and ABN, the contract price, the withholding amount, and the expected settlement date. Once lodged, the ATO issues a payment reference number (PRN) tied to that transaction. Only one PRN is issued per Form one lodgment, even where there are multiple purchasers.⁷

Form two, the GST property settlement date confirmation, is lodged after settlement to confirm the actual date and finalise the record.

Payment uses the PRN from Form one. The ATO accepts e-conveyancing, BPAY, credit or debit card, cheque by mail, and Australia Post via a barcoded payment slip.⁷ Payments cannot be made at an ATO shopfront. Because the money must reach the ATO on or before settlement day, slower methods need to be sent well in advance.

How the Seller Gets the Credit

When the ATO receives the withholding payment, it credits the amount to the supplier’s GST property credits account. When the seller lodges the next Business Activity Statement, the credit transfers into the activity statement account, which can take up to two business days.²

On the BAS, the seller reports the full property sale at label G1 and the GST on the sale at label 1A. Label 1A is the GST on the sale, not the withholding amount paid by the purchaser. Those two figures may differ, and confusing them is a common filing error.² The credit from the withholding then offsets the GST liability, so the seller does not pay the same tax twice.

Penalties for Getting It Wrong

The consequences depend on who missed the step, and the buyer-side numbers are the harshest.

A buyer who fails to withhold or pay faces an administrative penalty equal to the full amount that should have been withheld.² On a $660,000 property, that can mean a $60,000 penalty on top of still owing the original $60,000. The exposure effectively doubles.

A buyer who fails to lodge the two online forms attracts a failure-to-lodge penalty of one penalty unit ($330) for each 28-day period the forms are overdue, up to five penalty units ($1,650). Higher amounts can apply to larger entities based on turnover.²

Sellers who fail to provide the supplier notification face the $33,000 (individual) or $165,000 (company) penalties noted above.¹

The ATO has said it will not penalise buyers who reasonably rely on a supplier notification that turns out to be wrong, provided the buyer did not know it was incorrect. But where a buyer knows the property is new residential premises being sold by a GST-registered entity and withholds nothing simply because no notice arrived, the ATO treats that as unreasonable.²

Settlement Delays and Price Changes

Settlements rarely proceed exactly as scheduled. When the settlement date moves after Form one has been lodged, you do not start over. The PRN issued on the original lodgment stays valid, and you submit Form two with the actual settlement date once the transaction closes.

If the contract price changes before settlement through a variation, discount, or adjustment, the seller must issue a new supplier notification with the updated figures, and you use the corrected amount for the withholding payment. If the seller has not flagged any errors by settlement day, you can rely on the most recent notification received.⁵

Conveyancers and solicitors handle most of these moving parts, but the legal obligation stays with you as the buyer. If settlement is pushed out by weeks or months, keeping your conveyancer briefed means the forms and payment are ready the moment settlement proceeds.

1
Australian Taxation Office. Law Companion Ruling LCR 2018/4
2
Australian Taxation Office. GST at settlement
3
Australian Taxation Office. GST at settlement
4
ASIC. Fines and penalties
5
Australian Taxation Office. GST at settlement – a guide for purchasers and their representatives
6
Australian Taxation Office. GST property settlement online forms and instructions
7
Australian Taxation Office. How to pay the withholding amount