As a result of the 2017 budget, it would appear that from 1 July 2018, any buyers purchasing new residential property or land within a subdivision will have the onus placed on them to collect the GST from the purchaser and pay it to the ATO. This change will necessarily require developers to amend their existing contracts to reflect the upcoming changes, and to protect their positions with respect to property transactions.
The driving force behind these changes appear to be evidence of developers who have claimed input tax credits on transactions, but then failed to remit the GST to the ATO, and increases in businesses which are wound up by the ATO with outstanding GST liabilities. Further, as a result of instigating these measures, it has been estimated that there will be an increase of approximately $660 million dollars in GST revenue raised, indicating a further incentive for the changes to be enacted and implemented by the Government to support our economy.
These changes will have an obvious impact on property transactions, however the extent of the impact will not be known until closer to the time. There are many issues which need to be considered including:
- how the withholding mechanism will operate;
- the effect of this change on contracts being completed now (off the plan) which will not settle until after the 1st July 2018;
- Who will retain the GST liability if the purchaser fails to withhold and pay the GST amount to the ATO.
More specifically, for developers:
- how will a developer evidence the calculations relating to the margin scheme (which is a complex and somewhat confusing scheme already);
- what happens if the land was originally acquired on a GST-free basis as a going concern or if the land comes from a different title;
- how will the scheme be applied if the developer originally obtained the land by other means (e.g. deceased estate, joint venture).
The new scheme seems to be based loosely around the non-resident capital gains tax withholding regime which has been operating over the past twelve months and appears to be an effective means of capturing funds at the forefront of transactions. However, it remains to be seen how it will be implemented in practice.
Our Gold Coast property law team are equipped to handle the most complex of property transactions so you can rest assured you are in safe hands when using Affinity Lawyers for your conveyancing or property needs.
If you have any queries about the abovementioned changes, or if you need assistance with a property transaction or contract, please feel free to telephone our Gold Coast office today on 07 5563 8970 to discuss your conveyancing transaction with one of our friendly team.