New GST legislation will take effect from 1 July 2018 that will affect developers and purchasers of new residential land and their respective legal advisors.
The Treasury Laws Amendment (2018 Measures No. 1) Bill 2018 was passed and assented to on 29 March 2018. Amendments were made to a number of Acts including the Taxation Administration Act 1953 and A New Tax System (Goods and Services Tax) Act 1999.
One of the more critical amendments for property buyers and developers alike is that contracts for the sale of new residential premises* or potential residential land** entered into on or after 1 July 2018 will require the purchaser to remit the GST component directly to the ATO in lieu of the developer, on or prior to settlement.
There is a two (2) year transitional period for contracts entered into prior to 1 July 2018, so that the sale must settle prior to 1 July 2020 in order to avoid the new regime. This may affect many off the plan subdivisions and contracts that have already exchanged.
If the GST component is in addition to the purchase price, then the purchaser must remit 10% of the purchase price to the ATO. If the developer is applying the margin scheme, then the purchaser must remit 7% of the purchase price to the ATO.
The vendor must not make the supply unless it first serves a ‘withholding notice’ on the purchaser 14 days prior to the completion date. This is a strict liability offence.
The withholding notice must include the vendor’s name and ABN, the amount the purchaser will be required to pay the Commissioner, when the purchaser will be required to pay the relevant amount and any other matters prescribed by the regulations. However, the failure of the vendor to comply with its withholding notification obligations does not affect the purchaser’s obligations to remit the GST component to the Commissioner.
This change addresses the problem of developers collecting GST and failing to remit the GST to the ATO, either by taking steps to dissolve the developer company prior to remitting the GST collected or otherwise.
*‘New residential premises’ includes property that has not previously been sold as residential premises, has been created through substantial renovations of a building or have been built or contain a building that has been built to replace demolished premises on the same land and potential residential land.
**‘Potential residential land’ is land that is permissible to use for residential purposes but does not contain any buildings that are residential premises other than land which contains any building that is in use for a commercial purpose. The withholding obligation for potential residential land or commercial residential land only arises if the purchaser is not registered for GST.