A Bill has been introduced to amend the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and related legislation, requiring purchasers of new residential premises and new subdivisions of potential residential land to remit the GST on the purchase price directly to the ATO as part of the settlement process. Under the current law, the supplier of the property (eg the developer) is responsible for remitting the GST to the ATO upon lodging a business activity statement (BAS) up to three months after settlement.
The new measure was announced in the 2017–2018 Federal Budget to deal with developers dissolving their business and setting up a new entity to avoid paying GST to the ATO. In late 2017, the ATO reported that it had identified more than 3,700 people using this type of "phoenixing" activity to avoid their tax obligations over the previous five years.
When the Bill is passed, GST withholding by purchasers will commence on 1 July 2018. There is a two-year transition window for contracts that were executed before that date and will settle before 1 July 2020. After that date, GST withholding will apply to all residential sales.
The withholding amount is 1/11th of the contract price for fully taxable sales (reduced to 7% for margin scheme sales). Settlement adjustments are ignored and the withholding is based on the stated contract price only.
Purchasers will have two options in relation to the withheld GST:
- remit it to the ATO on or before settlement; or
- give the vendor a bank cheque on settlement (made out to the ATO).
All vendors of residential premises/residential land (including developers, investors and private home owners) will need to provide a notice to the purchaser before settlement advising whether GST withholding applies. Failure to do so will be a strict liability offence, attracting a fine of $21,000 for individuals and $105,000 for companies.
At the time of writing, the Treasury Laws Amendment (2018 Measures No. 1) Bill 2018 is before the House of Representatives.