Potential New GST rules - Purchaser GST withholding on sales of new residential premises
Under the current GST law, GST is included in the purchase price of new residential premises and new potential residential land; and the supplier/developer remits that GST collected to the ATO in their next Business Activity Statement following the transaction.
But, as part of the 2017-18 Budget, the Government announced that from 1 July 2018, purchasers of new residential premises (or new potential residential land, like new lots in residential subdivisions) will be required to remit the GST on the purchase price directly to the tax office as part of the property settlement process.
To this end, for the purpose of public consultation, before the legislation commences, the Government has issued an Exposure Draft of amending Treasury Laws Amendment (2017 Measures 9) Bill 2017; with an accompanying explanatory memorandum.
Basically, the amendment will mean that, regardless of whether the taxable supply is fully taxed or under the margin scheme; 1/11th of the GST inclusive price will be payable by the purchaser to the Tax Office at the time of settlement. So, the purchaser will be required to pay 1/11th of the total price to the ATO, and the balance directly to the supplier/developer.
If the margin scheme applies to the supply, it will mean that the margin scheme GST amount will be less than the GST amount paid at time of settlement; and then the supplier/developer will need to apply for a refund after their BAS for the relevant tax period has been assessed.
There are transitional rules, which will apply - whereby any contract for the supply of new residential premises or a new subdivided residential lot was entered into before 1 July 2018 and consideration for the supply is provided before 1 July 2020. These transitional supplies will not fall under the new regime. Under these transitional rules the purchaser need not withhold the GST and will instead, as is currently the case, pay the entire purchase price to the supplier/developer and the supplier/developer will pay the GST directly to the Tax Office via its next BAS.
This new law, if implemented, will have an impact on the cash flow of suppliers/developers. It will also add significant administrative requirements for both the supplier/developer and the purchaser.
Public consultation closes today; Monday 20th November, 2017; and we will keep you informed of the progress of the amending legislation.
Dereen Wallace, Partner
MBA BUSINESS SOLUTIONS
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