On 6 November 2017, Treasury published an Exposure Draft of legislation that will require purchasers of new residential premises and lots in new residential subdivisions to pay an amount equal 1/11th of the purchase price directly to the ATO at or before settlement.
The legislation was announced in the 2017-18 Budget and views on the draft are sought by 20 November 2017.
The new rules are to apply to supplies on which any of the payment (other than the deposit) is first provided on or after 1 July 2018, regardless of the date of the contract of the sale.
The new rules will mean significantly increased administration and adverse cash flow for developers and builders.
Implications for Developers, Home Builders
1.Developers must provide a written notice to the customer setting out the amount of GST to be withheld.
Penalty for non-compliance: $21,000 each time.
Under the proposed new rules, a supplier will be prohibited from making a taxable supply of “residential premises” or “potential residential land” unless, at least 14 days before making the supply, they give to the customer a written notice including:
- Whether the customer will be required to make a payment.
- If so, the amount required to be paid and when the amount is required to be paid.
Importantly, a notice will need to be given each time residential premises are supplied as a taxable supply.
2.GST to be withheld by the customer will be 1/11th of the total price, even where the margin scheme is to be used in calculating GST. This will lead to cash flow issues for developers and builders.
Where the margin scheme is applied to the sale, the GST payable by the supplier will be less than 1/11th of the price but the customer will still be required to withhold 1/11th of the price at settlement and pay that amount to the Commissioner.
In an attempt to address the cash flow difficulties that may be imposed on suppliers in these circumstances, the new rules provide for a refund mechanism whereby a supplier who accounts on quarterly tax periods and is making sales under the margin scheme can apply for a refund of the difference between the payment made by the purchase and the anticipated GST payable on the supply.
The Commissioner must refund the amount if it would be “fair and reasonable” to do so.
The fact that the customer withholds the GST from the settlement amount may further exacerbate the cash flow issues for property developers.