In the May 2017 Budget announcements, the Federal Government proposes that from 1 July 2018 purchasers of newly constructed residential properties or new subdivisions will be required to remit GST directly to the ATO as part of the property settlement process.
It is not contemplated that the remittance process will involve any payment through the purchaser’s BAS. It appears the payment will be made to the ATO as part of the property settlement process in much the same way as other debts of a vendor in respect of a property are paid to the vendor’s creditor on settlement. The Budget papers state that purchasers should experience minimal impact given the use of solicitors or other conveyancing professional attending to settlement of property purchases.
At present vendors who are liable to pay GST are responsible for remitting this, with remittance being required at times determined by whether the vendor accounts for GST on a cash or accruals basis and periodical BAS lodgement dates. This timing differential inherent in the application of GST to property transactions provides obvious cash flow advantages to vendors but appears also to have given rise to significant non-compliance.
The issue will have plenty of ground to run before the final design of the new arrangements are implemented so we won’t labour the point just yet but here are a few observations.
- The Budget papers suggest $660 million will be collected over the 3 years remaining in the Budget forward estimates cycle post date of effect of the changes – if we are reading between the lines right tha implies a pretty significant tax leakage since the commencement of GST in 2000 that the property development sector hasn’t being doing the right thing and the Government has now had enough – this aspect of the issue hasn’t seemed to rate much of a mention so far;
- We cannot imagine larger players in the sector will be too pleased with the prospect of losing the cash flow benefit provided by current arrangements. It is also expected there may be some carve outs as to when the new arrangements apply. Perhaps we will end up with a system like the Foreign Resident Capital Gains Withholding Regime whereby, if a vendor gets a “clearance” certificate from ATO, it will be able to continue to remit GST?
- Will purchasers be required to remit 1/11th of the purchase price? If remitting less than 1/11th, will purchasers be protected where the amount of GST remitted is understated?
- What obligations will apply to vendors in terms of information supplied to purchasers regarding the amount of GST to be remitted?
- Where the margin scheme is applied when determining any GST liability, vendors will effectively be required to disclose acquisition value of land to the purchaser – we can imagine a few concerns arising with this aspect of the new arrangements.
- The measures are to apply from 1 July 2018 – does this mean it will only apply to contracts entered into or after 1 July 2018 or to settlements taking place after 1 July 2018?
- Who has been / is monitoring compliance between now and the new system?