Due to a significant number of developers failing to remit the GST collected on the sale of properties in the past, the Australian government has introduced some significant changes that now require the purchaser of a "new residential property" to withhold GST from the purchase price or a property and remit this amount to the Australian Taxation Office.
This change comes into effect from the 1st July 2018 and will impact all contracts for the sale of new residential premises by a developer entered into after this date.
To help you understand the changes and how it may impact on your business, we have provided you with the following summary of how the legislation will work:
- From 1 July 2018, a purchaser will be required to withhold and pay an amount to the ATO when purchasing "new residential property".
Please note that where a contract of sale is entered into before 1st July 2018 and any payment under the contract (excluding the deposit) is provided before 1st July 2020, there will be no requirement for a purchaser to withhold the GST.
- The amount of GST to be withheld is 1/11th of the purchase price. However, if the developer uses the margin scheme, then the amount that needs to be withheld is 7% of the purchase price. Please note that settlement adjustments are ignored for determining the amount of GST withholding.
- Prior to settlement, the developer must provide a statement to the purchaser setting out the amount to be withheld and paid to the ATO (failing to provide this statement carries penalties up to $21,000).
- The vendor (developer) will be entitled to GST input tax credits for the withheld amount on the next activity statement so long as payment has been made to the ATO by the purchaser. This means that if the purchaser withholds an amount from the developer, but does not pay it to the Commissioner, the developer will not be entitled to input tax credits.
These changes present developers with a range of issues including significantly impacting the cash flow of a Developer. It is therefore important to be prepared and understand how these changes will impact your business.
Please contact our office if you require any further information relating to this.