Author – Fady Nahabia, HLB Mann Judd Brisbane
Purchasers of new residential premises or new residential subdivisions, are now required to remit the goods and services tax (GST) on the purchase price directly to the Australian Taxation Office (ATO). Under the current 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 three months after settlement. The major problem identified by the ATO with this 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 (commonly known as phoenixing).
The measure is proposed to apply from 1 July 2018, to supplies of new residential premises or new subdivisions of potential residential land. 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. New residential premises are defined in the GST Act and are generally premises that have not previously been sold as premises and have been built to replace demolished premises on the same land. New subdivisions of potential residential land are 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.
Where the supply of new residential premises is made under the margin scheme, the amount to be paid to the commissioner is 7 per cent of the purchase price. To minimise this cashflow impact, the supplier must apply for a refund of the amount of the GST that is anticipated would ultimately be refunded after their BAS for the relevant tax period. The supplier must apply to the Commissioner in the approved form at least 14 days before the end of the tax period to which the taxable supply is attributed.
The purchaser is required to pay the Commissioner of Taxation on or before the day that consideration (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.
It is an offence for a person failing to provide a written notice to the purchaser and a penalty up to $21,000 can be imposed. A purchaser may be liable for an administrative penalty unless they reasonably believe that a withholding obligation did not apply because it was not a new residential premises.
Vendors that make a taxable supply of residential premises or potential residential land are required to notify the purchaser. The notice is required to be in writing and provided to the purchaser before the supply is made. 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 to pay, 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.
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.