Property Update - GST to Impact Buyers of New Homes

The Government has now released Exposure Draft legislation in relation to its Budget measure that will require purchasers of new residential premises or new residential subdivisions, to remit the goods and services tax (GST) on the purchase price directly to the Australian Taxation Office (ATO). The application date is 1 July 2018 with various transitional rules applying, including those in respect of property developments entered into prior to this date.

Location:
National
Division:
Tax Consulting
Industry:
Property & Construction
Publish date:
07 November 2017
Author:
Daryl Jones

Daryl Jones

Tax Consulting
Director
Brisbane
+61 7 3001 8816

P: +61 7 3001 8816

Under the current GST law, GST is included in the purchase price of new residential premises and the developer then remits the GST to the ATO on completion of their next BAS, which can be up to 3 months after settlement.  The major problem identified by the ATO with this current approach has been where developers collect the GST on the purchase price and avoid remitting this GST to the ATO by dissolving their business prior to lodging the next BAS (otherwise known as “phoenixing”).
 
Key Features
 
When will the Measure Apply?
 
The measure is proposed to apply from 1 July 2018.
 
An exception to this rule applies where the contract for the supply is entered into before 1 July 2018 and the consideration for the supply is provided before 1 July 2020.
 
What Supplies will be Affected?
 
The measure will apply to supplies of new residential premises or new subdivisions of potential residential land.
 
New Residential Premises and Subdivisions
 
New residential premises is defined in the GST Act and is generally premises where they have not previously been sold as premises, have been created through substantially renovating a building, or have been built to replace demolished premises on the same land.  New subdivisions of potential residential land is intended to cover house and land packages where a purchaser may receive a taxable supply of vacant land which is the subject of a property subdivision plan.
 
When Does a Purchaser Withhold?
 
The purchaser is required to pay the Commissioner of Taxation on or before the day that consideration for the  (other than consideration provided as a deposit) is first provided.  In most cases, consideration is provided on settlement of the property.  A withholder is not required to be registered but must notify the Commissioner five days before they intend to make payment
 
What is the Amount to be paid?
 
The amount to be paid by the purchaser will be 1/11th  of the purchase price for the supply.
 
What Notification is the Supplier Required to Provide?
 
Entities that make a taxable supply of residential premises or potential residential land are required to notify the other entity.  The notice is required to be in writing and provided to the other entity at least 14 days before making the supply… Unlike the purchaser’s withholding obligation,, this notification requirement applies to the supply of any residential premises or any potential residential land.
 
It is only where the supply requires a payment that the vendor must provide additional information in the notice, including the vendor’s name and ABN and the amount of, and when the purchaser is required to pay the Commissioner.  As a transitional measure, where a contract is entered into before 1 July 2018 and the supply is made after that date, the supplier will be relieved from the requirement to provide this additional information
 
Failing to Notify
 
It is an offence for a person failing to provide a written notice to the purchaser (100 penalty units where a penalty unit is currently $210).  The Commissioner may also apply an administrative penalty.
 
Failing to Withhold
 
A purchaser may be liable for an administrative penalty unless they reasonably believe that a withholding obligation did not apply because it was not new residential premises.
 
Withholding Credits for the Supplier
 
An entity making a taxable supply will be entitled to a credit for the amount paid by the purchaser to the Commissioner (in the tax period to which the supply relates).  Importantly, the availability of the credit is contingent on payment being made to the Commissioner by the purchaser.  Special rules will apply where a sale is subject to the margin scheme.