If a Bill currently before Parliament passes, from 1 July 2018, purchasers of new residential premises or new residential subdivisions will need to remit the GST on the purchase price directly to the ATO as part of the settlement process.

This is a significant change from how GST is currently managed with the developer collecting the full proceeds and remitting GST to the ATO in their next BAS (which can be up to three months after settlement). The reforms are aimed at preventing developers from dissolving the business before the next BAS lodgement to avoid remitting the GST.

For some developers, there will be a significant cash flow impact. This is because the purchaser will be required to pay 1/11th of the full sale price to the ATO, even if the developer’s GST liability on the sale would be less than this (e.g., where they can apply the GST margin scheme). In these cases developers will need to seek a refund from the ATO.

The reforms apply to the sale or long-term lease of:

  • new residential premises (other than those created through a substantial renovation and commercial residential premises); or
  • subdivisions of potential residential land.

For the purchaser

If you are purchasing a new property affected by the changes after 1 July, a payment 1/11th of the full sale price has to be made to the ATO at settlement.

The vendor must supply a notification advising you of the purchase amount.

For the developer (vendor)

The vendor will no longer collect and remit GST on the purchase price of the residential premises starting July 1 2018. Instead, the vendor will notify the purchaser how much (payment) will be given to the Commissioner.
The settlement is simply 1/11th of the full sale price, regardless of whether the vendor is eligible to apply the margin scheme for the reduction of the GST liability. In general, this notification will need to include:

  • the name and ABN of the entity that made the supply;
  • they payment to the Commissioner (generally settlement date); and
  • the GST-inclusive market value of the consideration that is not expressed as an amount of money.

Vendors that fail to provide this notification face fines of up to $21,000 per event.

The vendor will receive a credit for the amount that has been paid by the purchaser to the ATO. This is if the amount was simply withheld but not paid these amounts cannot be claimed. If the vendor’s net amount for the tax period is in a credit, a refund will be made.

Expectingly, the settlement process will incorporate the new rules. It’s something that developers and purchasers have to face though. This is if the affected property’s settlement date is 1 July 2018 onwards.

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