The legislation to introduce the purchaser GST withholding regime for supplies of new residential property has been introduced into Parliament. Once enacted, the changes will come into effect from 1 July 2018.
The new regime will require purchasers of new residential premises and potential residential land to remit the GST payable on the supply directly to the Australian Taxation Office (ATO).
The withholding regime will impact residential property developers and purchasers, as well as lawyers, conveyancers, financers and other parties who operate in the property development industry.
Changes aimed at property developers who fail to remit their GST liability
Under the current law, property vendors remit the GST on their sales to the ATO by reporting it in their Business Activity Statements (BAS). The Government is concerned that some property developers fail to remit the GST on their sales, while still claiming input tax credits for development costs. In extreme cases, developers engage in phoenixing activities in order to deliberately avoid their tax obligations.
Under the new withholding regime, the responsibility for payment of the GST to the ATO will shift to the purchaser. This is intended to overcome the situation where the developer goes into liquidation after it receives payment for the property but before the GST is remitted to the ATO.
What will it apply to?
The new rules will apply to supplies, by way of sale or long-term lease, of new residential premises.
They will also apply to supplies of potential residential land that is included in a property subdivision plan and that does not contain any residential buildings or buildings being used for commercial purposes. A common example of potential residential land that will be caught within the new regime is a vacant block of land sold as part of a house and land package, which the purchaser acquires prior to the commencement of construction.
New residential premises that have been created as a result of substantial renovations will not be subject to the withholding requirement.
If you have any queries in relation to the above, please contact our Tax Accountants at The Quinn Group or submit an online enquiry form today.