Treasury have publicly released draft legislation for GST measures aiming to reduce the instances of phoenixing in relation to new housing, where property developers go into liquidation before paying over to the ATO the GST collected on sales of new homes. The measure was announced in the 2017 Budget and puts the onus on purchasers of new homes to withhold 1/11th of the purchase price and pay this over to the ATO. Developers must notify purchasers of the requirement to withhold at least fourteen days before the transaction occurs and penalties apply where this does not happen. The new rules are due to take effect from 1 July 2018.
Major developers were hoping an exemption would apply so that well-established businesses with good compliance records would not be caught by these new rules but at this stage no major exemptions are contemplated. These new rules are expected to have a negative impact on cashflow for developers, who would normally have the benefit of the GST paid by purchasers until they are required to pay it over to the ATO.
The draft legislation allows for the Commissioner to make determinations for possible exemptions from the withholding regime and also regarding when the tax must be paid to the ATO. The Explanatory Memorandum suggests such determinations will only be made if there are unintended consequences of the new rules.
Taxpayers will be able to claim off-setting credits for the amounts withheld once the purchaser has made payment to the ATO. In instances where the GST due on the transaction is less than the 1/11th withheld by the purchaser, e.g. due to the margin scheme, then the developer may be able to claim a refund of the tax. The draft legislation proposes an apportionment for mixed-use property.
There is a two year transitional rule for contracts entered into before 1 July 2018, where at least part of the consideration (not including a deposit) is paid before 1 July 2020, meaning that no withholding is required on such contracts.
Treasury has also sought to address Industry’s concerns regarding the impact the withholding regime may have on property development agreements that include the paying of GST to the ATO within the calculation of distributions between the parties.
There is a short consultation on the draft legislation with responses required in writing by 20 November 2017.