A new regime
The Commonwealth Treasury has released an Exposure Draft of the Treasury Laws Amendment (2017 Measures No. 9) Bill, which proposes a new payment process for goods and services tax (“GST”) on new residential developments and subdivisions.
Under the new regime, purchasers under off the plan contracts are required to withhold and remit GST directly to the Australian Taxation Office (“ATO”).
Application to property transactions
Contracts entered into from 1 July 2018 will have to comply with the new regime.
Contracts entered into before this date will not have to comply, so long as the purchase price is paid by 1 July 2020. If not, the new regime will apply to these contracts.
Under the new regime, purchasers must:
- Withhold 1/11th of the adjusted purchase price as GST before directly remitting this amount to the ATO either before or at settlement.
- Issue two separate notices to the ATO:
(a) one prior to payment stating they have an obligation to withhold; and
(b) one after payment, stating when the payment occurred.
For purchases paid for by installments, the GST must be remitted on the date of the first payment towards the purchase price. The payment of a deposit does not trigger this obligation.
Vendors must issue purchasers with a notice at least 14 days prior to settlement, which outlines:
- whether the purchaser has a withholding obligation;
- the amount of GST to be withheld;
- the Vendor’s name and ABN; and
- the date on which the amount on account of GST must be paid.
Vendors must ensure vigilant compliance with their notice obligations, as failure to do so can attract significant penalties.
Implications for Developers
Developers will no longer have temporary access to the GST amount of a purchase price following settlement.
Refunds and Tax Credits
Developers lodging their Business Activity Statement (“BAS”) on a quarterly basis are entitled to obtain a refund in situations where:
(a) there has effectively been an ‘overpayment’ of GST. This may occur in the context of margin scheme sales, as the GST required to be paid based on the margin scheme will be less than the amount that the purchaser should have remitted to the ATO; and
(b) a purchaser remits GST in error or remits an incorrect amount.
However, developers lodging their BAS on a monthly basis will only be eligible for the credit on lodgement of their BAS and not via a separate application process.
Property Development Agreements
Developers who have entered into development agreements with landowners, will need to consider how the new regime will impact their agreements.
As these agreements often have complex payment distribution arrangements, we recommend contacting our office with any questions you may have.
The rise of PEXA
Given that developers will want certainty that the withheld GST amount is actually paid to the ATO by the purchaser, developers should consider utilising PEXA for their settlements where the new regime is to apply; in particular, for sales made on or after 1 July 2018.
In preparation for the changes, developers may wish to consider amending their contracts and systems to ensure compliance with the new regime. This may include incorporating their notice obligations into all contracts of sale.