GST changes for new residential properties
Property Law: 23 March 2019
The Commonwealth Treasury has released an Exposure Draft of the Treasury Laws Amendment (2017 Measures No. 9) Bill which proposes a new goods and services tax (GST) withholding regime for new residential premises or new subdivisions of potential residential land as announced in the 2017-2018 Federal Budget.
The new GST regime forms part of a suite reforms introduced by the Government which aim to improve the integrity of the GST system with respect to property transactions, in particular by addressing tax avoidance phoenixing arrangements, where property developers collect GST from purchasers but dissolve their company to avoid paying it to the ATO.
Under the proposed new regime, which will apply to contracts entered into after 1 July 2018, purchasers of new residential premises or new subdivisions of potential residential land (which are taxable supplies) are required to withhold and remit GST directly to the Australian Taxation Office (ATO) as part of settlement.
The proposed regime will not apply to contracts entered into before 1 July 2018 provided the contract settles by 1 July 2020. If the contract settles on or after 1 July 2020, the new regime will apply regardless of the contract date.
If passed in its current form, all purchasers (subject to limited exceptions) of new residential premises or new subdivisions of potential residential land must withhold 1/11th of the adjusted purchase price as GST and remit it directly to the ATO on or before settlement. Purchasers must notify the ATO if they have a withholding obligation and notify the ATO again when payment has been made. Where the purchase price is paid by instalments, the obligation to withhold and remit to the full amount of GST to ATO is triggered by the first instalment payment (other than the deposit). Purchasers who fail to remit the GST to the ATO may be liable for a penalty.
The draft bill requires Vendor's to give written notice of certain matters, including the obligation to withhold GST, the amount and other vendor details, to the purchaser no later than 14 days before settlement. A vendor's obligation to give notice applies to all taxable supplies of residential premises or subdivisions, not just new premises and subdivisions. A failure to provide the required notice is an offence of strict liability which attracts a penalty of up to $21,000. An administrative penalty of up to $21,000 may also be imposed.
To alleviate some of the cash flow implications for vendors those that account for GST quarterly will be able apply for a refund where the margin scheme applied to the sale or where the GST payment was made in error. In its current form, the bill does not extend this refund mechanism to vendors who account monthly.
Public consultation on the draft bill closed on 20 November 2017. At the time of writing the bill is yet to be introduced to Federal Parliament.