New home builders to pay GST directly to ATO

FROM July 1, 2018 purchasers of new residential premises and new residential subdivisions will need to submit the GST on the purchase price directly to the Australian Tax Office (ATO).

New legislation was passed earlier this year to strengthen compliance with GST law in the property development sector.

Under previous legislation GST was included in the purchase price and the developer sent it to the ATO, however some developers were failing to do so while still claiming GST credits on construction costs.

The Minister for Revenue and Financial Services Kelly O’Dwyer said the changes would prevent tax evasion by unscrupulous property developers.

“This measure clamps down on dishonest developers and levels the playing field for developers who pay the right amount of tax,” she said.

“The government has consulted with industry to develop legislation that effectively addresses this type of tax evasion while minimising compliance impacts on industry and purchasers.”

According to the legislation:

– purchasers of new residential property transactions will be required to withhold 1/11th of the purchase price and pay this to the ATO.

– the developer will receive a credit for this GST through the normal GST business activity statement lodgement.

– a reduced withholding tax rate of seven per cent can be used where the margin scheme has been applied.

– developers will now be required to provide purchasers with information that assists them with determining whether the withholding applies.

– special transitional provisions are included for project delivery agreements.

Many buyers use settlement agents to complete their purchase and should experience little impact from these changes.

The legislation has a two-year transitional arrangement to provide certainty for existing contracts.

Contracts entered into before 1 July 2018 will not be affected by the change as long as the transaction settles before 1 July 2020.