To strengthen compliance with the GST law pursuant to a previous announcement in the 2017-18 Budget, the government recently released an exposure draft of legislation requiring purchasers of new residential premises, home sites or new subdivisions to remit the goods and services tax (GST) on the purchase price directly to the Australian Taxation Office (ATO) as part of settlement.
Under the current law developers collect GST from buyers as part of the purchase price and remit it to the ATO in the same way as any other business. However, from 1 July 2018, the new law requests the purchaser to hold back the GST component of the purchase price and pay it directly to the ATO.
The withholding provision applies to new residential premises and “potential residential land”. Generally, new residential premises are those which have not previously been sold as residential premises, created through substantial renovation or built to replace demolished premises. Potential residential land is land on which no residential premises exist but which can legally be used for residential purposes, (e.g. newly subdivided land zoned for residential use).
From 1 July 2018:
- 14 days prior to settlement, developers must issue a withholding notice to the buyer. Penalties will apply for failure to issue a notice.
- On or before the day the purchase price is paid, purchasers will be required to pay the GST amount to the ATO. Withholding amount will be 1/11th of the price, even if the actual GST is different (e.g. where the margin scheme applies).
- The developer will report the actual GST amount through their business activity statement (BAS) and will be entitled to a credit for the amount paid to the ATO by the buyer, and a refund if it exceeds the actual GST liability.
- If the developer remits quarterly or annually and makes a supply under the margin scheme, refunds for any excess withholding can be made before the BAS is lodged.
The new rules will remove the developers’ ability to utilise GST from sales proceeds for up to three months before their BAS is due for lodgement, although a corresponding delay in claiming credits during the development process will continue to apply. In addition, where the margin scheme applies the developers will have to wait up to three months or make a separate application to recover amounts withheld which exceed their actual GST liability.
The government has stated that purchasers should experience minimal impact from these changes as most of them use conveyancing services to complete their purchase. However this new obligation imposed on purchasers will increase the complexity and risk of buying and financing new property. Transitional relief will apply until 1 July 2020 for contracts signed before 1 July 2018.
If you need help in understanding the above, please contact one of our tax accountants or tax lawyer at The Quinn Group on (02) 9223 9166 or submit an online enquiry.