Legislation has been passed to change the way GST is paid to the Australian Tax Office (ATO) in relation to purchases of new residential premises or new subdivisions of potential residential land. These new provisions are expected to take effect on and from 1 July 2018.
This means that if the Contract has been entered into on or after 1 July 2018 then the new provisions will apply.
To gain an understanding of what type of purchases the new provisions will affect it is necessary to consider what is meant by ‘new residential premises’ and ‘new subdivisions of potential residential land’.
New residential premises
New residential premises are currently defined for the purposes of GST as residential premises that have been built to replace demolished premises on the same land or property not previously sold as residential premises.
New subdivisions of potential residential land
This term is not currently defined for the purposes of GST, however it is understood that the intention is to capture subdivisions that do not contain buildings used for commercial purposes. In particular, it is expected to relate to land sold as part of a house and land package where the purchaser settles prior to the commencement of construction of the dwelling.
Notification by developer or supplier
The developer or supplier will be required to provide a withholding notice either as part of the Contract or no later than 14 days prior to settlement, once the notice is received payment of GST prior to or on settlement will be required. This will be required in almost all circumstances, even where it is clear no taxable supply is being made, for example where a vendor is not registered for GST purposes.
When and what is being withheld?
Following receipt of the notice for the developer or supplier, if a withholding amount is required then:
- amount being 1/11th of the purchase price; or
- if the margin scheme applies then 7% of the purchase price,
will be required to be withheld and remitted to the ATO on or before the day of settlement.
Penalties for non-compliance
If the developer or supplier do not notify the purchaser then relevant penalties apply and if the purchaser does not withhold and remit the correct amount to the ATO then relevant administrative penalties apply. However, if the purchaser is relying on notification from the developer or supplier then penalties will not apply.
What is the date on the Contract?
If the Contract has been entered into prior to 1 July 2018 and the purchase price (not including the deposit) is first paid prior to 1 July 2020 then the new provisions will not apply.
This level of exception will require all parties to be vigilant, particularly where there are delays in completion.
As the new legislation is finalised and brought into practice it will be important for all parties to take into consideration each transaction that may be affected. In particular, Contracts for unregistered land with sunset dates and extensions to sunset dates that could result in the Contract to be subject to the new provisions.
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