Shift in GST payment liabilities to come into force 1 July 2018
Following their announcement in the 2017/18 Federal Budget, the Government has released draft legislation covering changes in the way GST will be paid on property transactions, effective from 1 July 2018. The changes will have a significant impact on cash flow for residential developers, and include substantial penalties for those who fail to comply.
What does this mean for property purchasers?
From 1 July 2018, purchasers of new residential premises or newly subdivided land will be required to remit GST directly to the Australian Taxation Office (ATO). This process will involve:
- Withholding and remitting 1/11th of the total price of the new residential premises/subdivided land.
- Paying the withholding remittance to the ATO on or before the day that consideration for the supply (other than a deposit) is provided.
- Notifying the ATO no less than 5 days before the withholding payment is due, with a further notification to the ATO on the day the withholding payment is made.
Failure to remit GST by purchasers will be a strict liability offence, with a potential penalty equal to the amount of the withholding remittance.
What does this mean for housing developers?
As a supplier of new residential premises, or newly subdivided land, you will need to:
- Notify the purchaser, at least 14 days before making the supply, as to whether they are required to make a withholding payment, the amount payable, the timing of payment, and the GST inclusive market value of any non-monetary consideration for the supply.
- Report the amount of GST payable in your Business Activity Statement (BAS).
- Apply for a withholding tax credit equivalent to the amount paid to the ATO by the purchaser.
If you fail to give the required notice in writing to a purchaser, it will be treated as a strict liability offence, with a maximum penalty of 200 penalty units ($42,000).
Under the new laws, you will also be eligible to:
- Receive net credit if the amount of GST payable is less than the amount withheld.
- Apply for a refund ahead of lodging your BAS where the margin scheme applies (although this refund is not available if the entity has monthly tax periods)
- Apply for a refund when GST has been withheld in error.
Detailed guidance on the administrative processes associated with the above changes has not yet been released.
Sources: https://www.pwc.com.au/tax/taxtalk/assets/alerts/gst-obligations-parties-residential-property-transactions-08nov17.pdf https://www.pwc.com.au/publications/changes-to-collection-of-gst-from-residential-property-developers.html