After first announcing it in the 2017-18 budget, the Treasury released the draft legislation to implement the GST property integrity measure on 6 November 2017.
Included in the amendments proposed, 1/11th of the purchase price amount will be withheld and remitted directly to the Australian Taxation Office (ATO) as part of settlement. This will be a requirement for purchasers of new residential premises or land in new subdivisions. The new arrangements are due to start on 1 July 2018.
Whilst these measures are said to be detrimental only to businesses in the property development sector, the amendments proposed may also affect all suppliers and purchasers of real properties concerned, as well as lenders funding property development projects.
Here is a summary of the proposed amendments:
- The purchaser has to be notified by an entity making a taxable residential premises or making a supply of potential land at least 14 days prior to settlement regardless if the purchaser is required to deduct a portion of the purchase price and pay it directly to the ATO. Failing to notify, including being unable to provide the complete information prescribed in the notice would subject one to a considerable amount of penalties.
- Should there be a need to withhold, an amount equal to 1/11th of the purchase price will have to be paid by the recipient of a taxable supply of new premises or potential residential land to the ATO on or before the day of the settlement. The Commissioner should also be notified by the purchaser 5 days before the payment is made.
- Contracts require payments by instalment but if any of the consideration is paid prior to the settlement, the withheld amount will have to be paid by the purchaser by the end of the day on which the first payment is made.
- The entity making the taxable supply of new residential premises or potential residential land is required to report its GST liability to the ATO in its activity statement covering the tax period to which the supply is attributable.
- The entity will have the chance to apply for a refund of the GST amount that it expects to be refunded after its BAS for the appropriate tax period has been checked, given that the supply is made under the GST margin scheme and the entity that made this supply reports its GST obligation quarterly or yearly. Particularly, the application for refund must be placed at least 14 days prior to the end of the tax period where the taxable supply is attributed, so will not lessen the cash flow disadvantage of sales settled in the last 14 days of the tax period.