Important changes from 1 July 2018 obligates purchasers of ‘new residential premises’ or ‘new residential subdivisions’ (with contracts exchanged after 1 July 2018) to remit the GST component of the purchase price directly to the Australian Taxation Office (ATO)
In an effort to stop property developers engaging in a practice known as ‘phoenixing’, namely a developer collecting GST on the purchase price of a property but then dissolving the entity without remitting the GST to the ATO, the Federal Government has made changes to GST legislation and placed the obligation on purchasers of new residential premises or subdivisions to remit the GST component to the ATO. The ATO has estimated a loss of $2 billion in taxation revenue for the 2015/2016 tax year due to developers phoenix practices.
The recent amendments to the Tax Administration Act 1953 (Cth) will apply to all contracts for sale that are exchanged after 1 July 2018 or which were exchanged prior to 1 July 2018 but where the consideration payable under the contract is paid after 1 July 2020.
Purchaser’s obligations
Purchasers will be liable to pay the GST component of the purchase price direct to the ATO (instead of to the vendor) if they are the purchaser of a ‘new residential premises’ or a ‘new residential subdivision’.
In certain circumstances purchaser’s will not be liable if the supply is for:
- new residential premises created through ‘substantial renovations of a building’
- commercial residential premises
- potential residential land
- included in a property subdivision plan and containing a building in use for commercial purposes
- where the purchaser is registered for GST and acquires the property for a creditable purpose.
If the purchaser is liable to pay an amount of GST, then that payment must be made on completion of the sale of property.
The amount paid by the purchaser must be 1/11th of the consideration paid for the property. Unless the margin scheme applies, and an amount equal to a rate of 7% of the consideration is paid, although this rate can be amended by the Minister at a later date.
The ATO has provided a new set of forms for purchasers to use when notifying the ATO and making payment of the GST. Your solicitor will be able to organise the required forms and payment of the GST component to the ATO on settlement.
A premises is considered to be ‘new residential premises’ if the premises has:
- not previously been sold as residential premises
- been created through substantial renovations of a building
- been built to replace a demolished premises on the same land.
Whilst ‘new residential subdivisions’ includes any ‘potential residential land’ contained in a subdivision plan which has not previously been sold.
The exemptions are defined as:
- ‘Potential residential land’ means land that is permissible to use for residential purposes, that does not contain any buildings that are used for residential premises. This includes land that has been zoned for use for residential premises under a law of a State or Territory but that does not contain any residential premises.
- ‘Commercial residential premises’ includes but is not limited to:
- a hotel, motel, inn, hostel or boarding house
- premises used to provide accommodation in connection with a school
- a caravan park or a camping ground.
Vendor’s obligations
A vendor will also be prohibited from making a supply of ‘residential premises’ or ‘potential residential land’ unless, before completion, it has provided the purchaser with a written notice specifying:
- the vendor’s name and ABN
- the amount that the purchaser is required to withhold
- the date on which the purchaser is required to make the payment
- any other matters specified in the applicable regulations.
If a vendor fails to provide a purchaser with the required written notice it will face a fine of up to 100 penalty units (approx. $21,000).
It is important when choosing a solicitor to act on your conveyance that they are knowledgeable in all the up to date legal obligations of both purchasers and vendors.