GST at settlement measure – how the ATO is hitting back at phoenix developers

Are you a property developer? Take note, critical changes to how you pay GST on property sales take effect from July 1.

As of July 1, 2018, where GST is payable on the supply of real property, it will be withheld at settlement by your purchaser and paid directly to the Australian Taxation Office (ATO).

The move is set to impact dramatically on cash-flow for developers, and add to the requirements of purchasers (and their conveyancers) before and after settlement.

WHAT’S CHANGING

Where the sale or transfer of real estate constitutes a ‘taxable supply of property‘ (under Australian taxation legislation) the supplier of that property may be required to pay GST (goods and services tax) to the Australian Taxation Office (ATO).

Until now, the supplier (or vendor) has received full net proceeds of the sale at settlement, and was required to pay any GST upon their next business activity statement (BAS) return to the ATO, or offset the amount payable with GST credits.

From 1 July 2018, purchasers of new residential premises or subdivisions of potential residential land will need to pay the GST component of the purchase price directly to the ATO on or before settlement.

IMPORTANT: The amount of GST payable will not change.

WHY IS THIS BEING INTRODUCED?

Put simply, the ATO is trying to clamp down on ‘phoenix’ activity. Illegal phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements.

IMPORTANT TO KNOW

This does not affect the sales of existing residential properties, or the sales of new or existing commercial properties. The measure will apply only to ‘new residential premises‘ and ‘potential land subdivisions‘.

If you are a Vendor, it will be crucial to seek advice from your accountant BEFORE entering into contract of sale to ensure you know if GST will be payable or not. Not notifying or incorrectly notifying your purchaser will incur hefty penalties.

HOW WILL IT WORK

Property developers will need to give written notification to the purchasers when they need to withhold.

For property transactions, purchasers (with the assistance of their Conveyancer) will need to:

  • split the amount of GST from the total purchase price
  • pay the GST component directly to the ATO by a disbursement at settlement
  • pay the remaining, GST-exclusive component of the purchase price to the property developer (vendor).

(Settlements and title to real property will not be conditional on the payment of GST to the ATO, but penalties for non-compliance will apply).

The liability for the GST remains with the property developer, and there are no changes to how property developers lodge their business activity statements.

MORE INFORMATION TO COME

The ATO is continuing to develop regulations to support these legislative changes. Further advice and information will become available as July 1 nears. We recommend meeting with your accountant and conveyancer as soon as possible to discuss how the changes will impact on you.

In the meantime, further information is available from the ATO wesbite:

https://www.ato.gov.au/general/new-legislation/in-detail/indirect-taxes/gst/improving-the-integrity-of-gst-on-property-transactions/


Connolly Wilson Conveyancing’s team of registered conveyancers are South Australian experts in the legal transfer of interests in real property. The advice on this website is general in nature. We recommend discussing any planned property dealings with us to ensure all relevant details have been considered. You can chat to one of our friendly conveyancers by getting in touch today.

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