The Government is fulfilling its Budget commitment to stamp out tax evasion in the property development industry by implementing The Treasury Laws Amendment (2018 Measures No.1) Bill.

From 1 July 2018, the purchaser of new residential land or a proposed property subdivision will now have to withhold the GST on the purchase price and remit the GST directly to the Australian Taxation Office (ATO), as part of settlement.[1]

The changes proposed by the Bill will see a fundamental shift in the way GST is collected in respect to residential property transactions. Suppliers, purchasers, advisors, conveyancers and agents should consider the potential implications now to ensure they understand their new obligations and avoid heavy penalties.

The strict legislation will bring a stop to failure to remit GST, which has been the case in the past with some property developers. The aim of the Bill is to strengthen tax integrity and enforce correct tax payments by all entities involved.

The Bill clarifies the following points:

For Purchasers

  • Responsibility for withholding and remitting 1/11th of the purchase price directly to the ATO at settlement (irrespective of whether 1/11th of the purchase price reflects the actual GST liability for the transaction).
  • Payment of GST must be made on or before the date which the consideration for the purchase (other than the deposit) is first provided, which is usually at settlement.

For Developers

  • Must provide written notice to their purchasers at least 14 days prior to settlement advising how much GST is required to be withheld (if any), when it is to be paid and the vendor's ABN.
  • Notification obligations apply to the supply of any residential premises - NOT just new residential premises.

For those already in contracts, there is a two-year transitional grace period. Contracts entered into before 1 July 2018 will not be affected by this change, as long as the transaction settles before 1 July 2020.

For full details on the Bill, please click here.

To find out whether this will impact your next tax payment, please call your West Carr & Harvey accountant for more information.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Reference

[1] ATO 2018, ‘Improving the integrity of GST on property transactions’ accessed on 6 March 2018, https://www.ato.gov.au/General/New-legislation/In-detail/Indirect-taxes/GST/Improving-the-integrity-of-GST-on-property-transactions/