GST Withholding Changes
Residential property and GST rules are changing and these changes, are going to cause a lot of cash flow problems for people that are in the residential property development area and those who use the GST margin scheme in their residential property development.
From 1 July 2018, all purchasers of new residential premises or new residential subdivisions will be required to pay the GST component of the purchase price directly to the Australian Taxation Office and not to the vendor. This means that 1/11th of the purchase of any new residential premise or new residential subdivisions will be paid directly to the Australian Taxation Office upon settlement of the purchase of the property and the vendor will claim the GST paid upon lodgement of their Business Activity Statement (BAS).
These changes are arising as part of the Phoenix Activities Anti Avoidance taskforce targeting what has been alleged to be happening in the building industry for many years, in particular where the Australian Taxation Office is left holding the unpaid debts for a liquidated company, and as part of the crack down on those areas, these changes have been implemented which are a significant shift from the usual way in which the GST Law applies.
Under this new scheme, the vendor must provide the purchaser with a GST withholding notice which tells the purchaser whether they are required to withhold GST and if so how much. This notice must be provided at least fourteen days before making a supply (property being settled). This notice applies to the supply of any residential premise or any potential residential land.
If this notice is not supplied before the relevant period, upon settlement the monies must be remitted to the Australian Taxation Office and the vendor will have to report a credit on their next BAS for a refund of the GST paid. The refund will usually only occur where the margin scheme has been applied or a notice has not been provided in due time.
The biggest issue for taxpayers is the notice period and the payment of the GST upfront and claiming back the GST when the BAS is lodged. The cashflow implications can make a large difference as well as the difficulties which will initially arise as banks and lawyers adjust to the differences this will create at settlement and what effect it will have on cashflow and lending capacity.
Taxpayers are entitled to use a new refund mechanism to receive their refund back in much more timely manner if they are quarterly lodgers for GST purposes, however, this new scheme basically requires the vendor to prove that they are entitled to a refund, often by providing their margin scheme calculations in order to demonstrate they are entitled to the refund.
If you have any questions on how these rules might affect you, please do not hesitate to contact us.
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