In February 2018 the Government introduced draft legislation to Parliament changing the GST treatment of the sale of ‘new residential premises’. This gives effect to the measures initially announced in the 2017 federal budget and follows Exposure Draft legislation released late last year.
The changes represent a fundamental departure from the current treatment of GST on the sale of new residential premises.
The headline aspects are:
- From 1 July 2018, a purchaser will be required to withhold and remit an amount to the ATO when purchasing new ‘residential property’ (subject to the transitional provisions below).
- There are transitional provisions where a contract of sale is entered into prior to 1 July 2018 and any consideration under the contract (excluding the deposit) is provided before 1 July 2020. Otherwise, any consideration paid for the supply of ‘new residential premises’ after 1 July 2018, will be subject to the 'GST withholding'.
- The amount to be withheld is 1/11th of the purchase price. If the supplier uses the margin scheme, it is 7 percent of the purchase price. Settlement adjustments are ignored for determining the amount of GST withholding.
- Prior to settlement, the supplier 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 is entitled to GST input tax credits for the withheld amount the purchaser pays. This means if the purchaser withholds an amount from the supplier, but does not pay it to the Commissioner, the supplier will not be entitled to input tax credits.
- A long term lease (i.e. more than 50 years) is treated as a sale and subject to the new provisions.
- Sale of a house and land package under a single contract will have different treatment (i.e. full withholding) compared to the sale of land with a separate contract for construction (i.e. withholding only on the sale of land.
These changes present developers with practical, logistical and legal issues. It will be critical to obtain tax, accounting and legal advice to ensure property development activities are carried out in the most tax effective manner.
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