Public Consultation on proposed new requirement for purchases to remit GST in property transactions
The Government is conducting public consultations on draft legislation that implements the 2017-18 Budget measure to address GST integrity within the property development sector by requiring purchasers of new residential premises or new residential subdivisions to withhold the GST on the purchase price from the vendor and pay it directly to the ATO. The purpose of this consultation is to seek industry and community views on the implementation details of the measure as outlined in the draft legislation and explanatory material.
Details of the changes
The measure will, if enacted, come into effect from 1 July 2018. However, it is expected that contracts entered into before 1 July 2018 will not be affected as long as the transaction is settled before 1 July 2020.
The measure applies to supplies of new residential premises, or new subdivisions of potential residential land (off-the-plan) and will require purchasers to pay the ATO the GST amount, on or before the day that consideration (excluding deposit) for the property is first provided. This will most typically occur at settlement. Where the consideration is paid in multiple instalments, the purchaser will be required to make the full payment of the GST amount to the ATO on the first instalment date, however the purchaser will be discharged of their obligation to pay that amount to the vendor in the first instalment. The GST amount to be paid will be fixed at 1/11th of the price for the property.
It has been suggested that purchasers should experience minimal impact as the responsibility will shift to solicitors or other conveyancing professionals. However, the proposed measures in addition to the new requirements set out by the Foreign Resident Capital Gains Withholding Regime will add complexity to the conveyancing process and create additional work that will be needed to be undertaken by solicitors and conveyancers. As a consequence of the additional work, the cost of conveyancing services may increase. Moreover, purchasers wishing to represent themselves will face difficulty understanding the complexities of the new measures and may find it challenging to comply with them.
Failure of the purchaser to withhold and make payment of the GST amount to the ATO, will subject them to a strict liability offence and they will be penalised 10 penalty units.
The proposed measures may impact developers who will essentially be losing the cash flow benefit provided by the current arrangements, and may find themselves in a situation where the amount available at settlement is insufficient to pay down lending facilities at the time of settlement. As a potential response, developers may seek to increase the price of their stocks to achieve higher pre-sale level requirements and meet their obligations to lenders.
Development financiers will also expect to have cash flow issues as they will receive a reduced amount upon settlement of off-the-plan residential properties as a result of the GST amount being withheld from the proceeds of sale. Currently the GST amount is available for collection by lenders, and without it, the risk for lenders is increased. As a result, lenders may look to shift the risk to the developers by increasing pre-sale targets for developers and by pricing their construction loan products higher.
Submitting a response
As it is a public consultation, any interested parties are invited to comment. The submissions will close by Tuesday 20 November 2017; given the tight deadline, it is imperative that interested parties prepare feedback and commentary as soon as possible.
As these consultations are public, information (including name and address details) contained in the submissions will be made available to the public on the Treasury website unless you specifically indicate that you would like all or part of your submission to remain in confidence.
Formal submissions are to be sent to GSTproperty@treasury.go.au by close of business on 20 November 2017.
It is advisable that you visit the Treasury website to have a look at the relevant documents and for further details on these consultations.
Gary Newton, Partner
Henry Yuan, Law Clerk