LEGISLATION CHANGES ALERT: Changes to GST on residential property

New laws aimed at improving the integrity of the goods and services tax (GST) on certain properties will commence on 1 July 2018. These laws will affect all property transactions that are considered a taxable supply of new residential premises or a subdivision of potential residential land.

The types of property transactions that will be impacted by the legislative changes include:

  • Property that has not previously been sold as residential premises;
  • New buildings constructed to replace demolished buildings; and
  • Land permitted to be used for residential purposes but on which residential premises have not yet been constructed.

Instead of paying the full contract price to the GST registered supplier (i.e. the vendor/seller), from 1 July 2018 the purchaser will be required to withhold a portion of the contract price and pay it directly to the Australian Taxation Office (ATO) on or before the settlement date.

The legislative changes are aimed mainly at property developers who have failed in the past to remit the GST collected from purchasers to the ATO.

The onus to pay GST will now shift to the purchaser and the amount that the purchaser will be required to withhold and then remit to the ATO will depend on the type of taxable supply, being:

  • 1/11th of the contract price – for fully taxable supplies;
  • 7% of contract price – for margin scheme supplies; and
  • 10% of GST exclusive market value of the supply – for supplies between associates for a price less than GST inclusive of market value.

Vendors will be required to serve a withholding notice on purchasers at least 14 days before the date the supply is made and failure to serve such notice will be considered a strict liability offence.

There will be no changes to how property developers will lodge their business activity statements or report on their GST liabilities/entitlements on the taxable supply of these types of properties. However, as they will no longer have control of the GST component of the funds before they are remitted to the ATO, the new changes may impact developers’ cash flow.

It should be noted that settlements will not be conditional upon the payment of GST to the ATO and these changes do not require the withheld amount to be paid to the ATO before the title transfer can be registered with the relevant state or territory agency.

Purchasers that enter into a property sales contract prior to 1 July 2018 and settle before 1 July 2020, will be exempt from withholding the GST and will not be penalised for doing so.

There are also a number of property transactions that are excluded from this new regime, including:

  • Sale of commercial properties (e.g. factory, shop) or commercial residential developments (e.g. hotel, motel);
  • New residential premises created by substantial renovations; and
  • Fully taxable supply of vacant land between GST registered businesses where the purchaser is entitled to a full tax credit (GST refund) on the purchase.

At DSS Law, our contracts and processes have been updated to ensure they reflect the new changes from 1 July 2018. We will assist vendors in ensuring the relevant notification is given to purchasers in the required time; and ensure purchasers withhold and remit the relevant GST funds to the ATO.

Should you require any further advice in relation to these changes, please contact our offices.

19/06/2018

Disclaimer

DSS Law insight articles are intended to provide commentary and general information. They should not be relied upon as formal legal advice. If you would like specific advice relating to this topic, please contact DSS Law on 1300 DSS LAW or epost@dsslaw.com.au.