In an effort to strengthen adherence to the payment of GST on new residential premises and/or land (e.g. subdivisions) property sales made by developers, earlier this year the Australian government declared that the obligation to remit GST to the ATO falls from the developer to the purchaser. This new rule took effect on 1 July 2018 for all contracts entered in to and signed after this date.
If a contract was signed prior to 1 July 2018 and the property settlement will occur prior to 1 July 2020, then that transaction is excluded from the new rule. If, however, a contract was signed prior to 1 July 2018 and the property settlement will occur post-1 July 2020, then the transaction is affected by the new rule.
Developers must change their contracts to ensure that they provide written notification to the purchaser at least 14 days prior to settlement that the GST component of the purchase price must be withheld by the purchaser and remitted directly to the ATO at the time of settlement or at the time of a first instalment (other than the initial deposit).
Penalties will apply for failure by a developer to provide notice in writing to the purchaser of the requirement to withhold the GST amount.
The rate of withholding amount applied generally will be 1/11th of the GST-inclusive purchase price.
Where the ‘margin scheme’ is applied to a sale, the GST payable will be equal to or less than 7% of the purchase price. This will entitle the developer to seek a refund of the difference during BAS lodgement where the amount withheld and remitted to the ATO is greater than the developer’s GST liability.
Significantly, developers are entitled to a GST credit on the GST that is withheld, so long as the purchaser has actually paid the GST amount to the ATO. This credit is to offset the GST liability required to be disclosed in the developer’s BAS for making a taxable sale.
Until now developers have benefitted from temporary access to the GST amount after settlement and might now experience cash flow hardship.
To assist you with filing for credits on GST amounts withheld, and to help you successfully manage cash flow during the transition phase, please consult your accountant.
How can YML help?
Talk to our YML Chartered Accountants Team today to see how YML Group can assist you with your new property sales. Contact us on (02) 8383 4400 or by visiting the Contact Us page on our website.