GST on property developments
If a Bill currently before Parliament passes, then purchases of new residential premises or new residential subdivisions will need to remit GST as part of the settlement process.
Big changes are afoot if new legislation passes through Parliament, requiring that purchases of new residential premises or new residential subdivisions remit the GST on the purchase price directly to the ATO as part of the settlement from 1 July 2018.
It's a significant change from how GST is currently managed, where the developer collects the full proceeds of the sale and remits the GST to the ATO in their next BAS. This can occur up to three months after settlement. The reforms are aimed at preventing developers from dissolving the business before the next BAS lodgement to avoid remitting the GST.
For some developers, the changes would have a significant impact on cash flow because the purchaser would be required to pay 1/11th of the full sales price to the ATO directly, even if the developer's liability on the sale would be less than this amount (e.g. where they can apply the GST margin scheme). In such cases, the developers will need to seek a refund from the ATO.
The reforms apply to the sale or long-term lease of:
- New residential premises (other than those created through a substantial renovation and commercial residential premises); or
- Subdivisions of potential residential land.
Buyers of properties will need to pay 1/11th of the full sale price after 1 July 2018, directly to the ATO at settlement. The vendor must supply a notification advising that the payment is required and the amount that is to be paid.
From 1 July 2018, the vendor will no longer collect and remit GST on the purchase price of the residential premises.
Instead, the vendor must notify the purchaser in writing that the GST needs to be paid to the Commissioner and advise the amount that must be paid. The amount to be paid is simply 1/11th of the full sale price, regardless of whether the vendor is eligible to apply the margin scheme to reduce the GST liability associated with the transaction. In general, this notification will need to include:
- the name and ABN of the entity that made the supply;
- when the purchaser is required to pay that amount to the Commissioner (generally settlement date); and
- where some or all of the consideration is not expressed as an amount of money (e.g., sale of property for cash plus another property) - the GST-inclusive market value of the consideration that is not expressed as an amount of money.
Failing to comply is not inconsequential. Vendors that fail to provide this notification face fines of up to $21,000 per event.
The vendor will receive a credit for the amount that has been paid by the purchaser to the ATO (if the amount was simply withheld but not paid these amounts cannot be claimed). If the vendor's net amount for the tax period is in a credit, a refund will be made.
It's expected that the new rules will generally be incorporated into the settlement process, but it is something that developers and purchasers will need to be across for any affected property with a settlement date of 1 July 2018 onwards.
If you are developing property and are concerned about the impact of the reforms, please contact us on 02 9957 4033.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.