On 29 March 2018, in a bid to strengthen compliance with GST Laws, the Government made changes to the GST remittance rules affecting property sales. Effective 1 July 2018, the new GST regime requires purchasers of newly constructed residential properties or potential residential land (i.e. new subdivisions) to withhold the GST amount and remit it directly to the Australian Taxation Office (“ATO”).
Why the changes?
The new GST regime has been introduced to shift the obligation to remit the GST to the ATO from developers onto purchasers. Largely, this shift is an administrative measure to prevent developers making taxable sales on residential property from failing to remit the GST collected from purchasers to the ATO while claiming input tax credits for development costs.
What is the rate of withholding?
The rate of withholding amount differs depending on the whether the margin scheme is applied to the transaction. If the margin scheme does not apply to the transaction, the rate of withholding is 1/11th of the GST inclusive purchase price set out in the contract.
If the margin scheme does apply the rate of withholding is currently set at the default position of 7% of the GST inclusive purchase price, however the legislation reserves the right for the Minister to make a determination amending this amount to a rate not exceeding 9%.
Withholding obligations for purchasers
Generally, purchasers of new residential land and potential residential land (including subdivision of land and the sale of home and land packages) will have to pay the withholding amount directly to the ATO at settlement or by providing a cheque payable to the ATO to the developer at settlement. The amount required to be withheld is calculated irrespective of whether the amount reflects the actual GST Liability for the transaction or not.
The purchaser is required to remit the withholding amount to the ATO on or before the date which monies (not including deposit) are first provided for the asset. For most property transactions this will likely be the date of settlement however, for contracts under which the price is payable in instalments, the withholding amount will be due on or before the date for payment of the first instalment of the balance purchase price.
If there is a discrepancy between the amount withheld and the actual GST liability of the transaction, the developer is required to seek a refund for the difference from the ATO.
Notification obligations for developers
The new GST regime creates an obligation on the developer to provide written notice to the purchaser 14 days prior to settlement, advising that the property is or is not new residential property and providing the vendor’s ABN. If the purchaser receives a notice that the property is not new residential property and this turns out not to be the case, then the purchaser can rely on the developers notice to avoid an administrative penalty from the ATO for not withholding. A failure by a developer to provide notice of an amount to be withheld can expose the developer to a fine of 100 penalty units for individuals (currently $21,000) or 500 penalty points for companies (currently $105,000).
When does the new regime take effect?
The changes take effect on 1 July 2018 and exclude all contracts entered into prior to that date provided that the property transaction settles before 1 July 2020. If settlement occurs after 1 July 2020, the new GST regime will apply to pre-1 July 2018 contract date transaction.
The effect on developers
The new GST regime will have the potential to create cashflow issued for developers as they will no longer have the benefit of temporary access to the GST amount after settlement.
If you like more information regarding the new GST regime and how it affects you, please contact our Property Lawyers on 07 5574 0623 or by email at email@example.com.
You can find more information about buying and selling residential property in Queensland on our website.