The Australian government has recently introduced changes to GST law affecting suppliers and purchasers of new residential premises or subdivisions of potential residential land.
Purchaser to remit GST directly ATO
Under these changes, purchasers of new residential premises (other than those created through a substantial renovation and commercial residential premises) or subdivisions of potential residential land will be required remit any GST payable on the purchase price directly to the Australian Tax Office (ATO) as part of the settlement process.
Currently, suppliers of new residential premises that are subject to GST must remit the GST to the ATO after lodging their BAS. The Australian Government states that one of the main forms of non-compliance involves property developers selling new residential premises or new residential subdivisions, collecting the GST, but dissolving the business before the next BAS lodgement in order to avoid remitting the GST to the ATO (known as ‘phoenixing’). This effectively avoids payment of GST to the ATO and has resulted in over 1.8 billion of debt being written off by the ATO.
With these changes, the obligation to remit the GST to the ATO will now rest with the purchaser.
These changes apply to contracts entered into on or after 1 July 2018.
There are transitional arrangements that apply to contracts entered into before that date where consideration is provided. Under these transitional arrangements, the purchaser is not required to remit any GST payable to the ATO.
Suppliers will be required to provide notification to purchasers before making the supply, including:
- the name and ABN of the entity that made the supply;
- the amount that the purchaser will be required to remit to the ATO; and
- when the purchaser is required to pay that amount to the ATO.
Failure to notify
It will be a strict liability offence if a supplier fails to provide the notification to a purchaser and is subject to statutory penalties.
GST payable to ATO
The GST amount payable to the ATO will be an amount equal to:
- if the margin scheme applies, 7% of that contract price or a greater amount that has been determined by the Minister; or
- otherwise 1/11th of the contract price.
Credit to supplier
Where the purchaser remits the GST to the ATO, the supplier will be entitled to a credit for the amount of the payment made to the ATO by the purchaser. In order for the supplier to claim the credit, the purchaser must have actually paid the GST to the ATO.
Preparing for the 1 July 2018 change
In order to prepare for these changes, developers of new residential premises or subdivisions of potential residential land should ensure that their standard sale contracts are reviewed and updated to ensure compliance.
Other real estate professionals (including agents and conveyancers) should be aware of the shift in responsibility for payment of GST from the developer to the purchaser and ensure that the sale contracts and settlement procedures for their clients are reviewed and updated.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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