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Draft Legislation released on withholding GST on Residential Property Transactions

On 9 November UDIA National met again with officers from Commonwealth Finance & the Australian Tax Office (ATO) to discuss the Tax Integrity Package for GST from the May Federal Budget, which changed the GST for most newly constructed residential properties to be paid directly by Purchasers to the ATO from 1 July 2018. Following our meeting on 31 July, where we expressed the industry concerns that this change will have a significant detrimental impact on housing supply & affordability, as an unintended consequence.

The Federal Government has released a draft bill, which addresses some of our concerns in relation to the legislation.

System

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If payment of 1/11 of purchase price is not received by the ATO the purchaser has not provided consideration, so would not have secure title over the property.

The final GST liability will be resolved as part of the BAS cycle; however, developers using the margin scheme can apply for a rapid refund.

The developer will be able to include the requirement to pay 1/11 of the purchase price (this does not include consideration provided as a deposit) into the contract. The ATO is considering whether this alone will be sufficient or whether additional notice is also required to the purchaser, so they are aware of the additional obligation when buying a new property.

GST Overpayment

As part of the BAS cycle developers will receive a credit through the scheme, they will be refunded any additional GST paid above the requirements. In addition, if the contract apportions separate items, such as incentives, lower GST can be paid initially if it is apportioned in the contract.

Rapid Refund System

This has been minimised with developers using the margin scheme able to apply for a refund immediately once settlement has occurred, as opposed to waiting for the BAS Cycle. This will minimise cashflow impacts.

Transitional Measures

Contracts exchanged prior to 1 July 2018, which settle before 1 July 2020, will not be subject to the new regime.

Property Development Agreements

A legislated override will be included, which will mean any transfers as part of the property development agreement to provide compensation for GST liability will no longer be payable for the portion of the liability met through the withholding scheme.

While, most developers do the right thing and meet their obligations, some unfortunately operate outside the GST legislation and that ‘Phoenixing’ is escalating, with over 3,700 cases and $2b written-off over the last decade.

UDIA has continued its advocacy to minimise impacts on the vast majority of developers who have been compliant, and we are pleased that Treasury has adopted some of our recommendations for a rapid refund for developers, transitional measures and Property Development Agreements.

UDIA National will make a further Submission on November 20 and a copy of the draft Legislation is available here.