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News & Knowledge

Australia: Purchasers become tax collectors – Changes to GST collection for property developers and others

8th June 2018
Justin Marschke & Scott Hornsey - Tucker & Cowen Solicitors

From 1 July 2018, the ATO process for collecting GST on certain residential property sales will be changing. MSI's Brisbane law member Tucker & Cowen Solicitors provides further insight on the new regime affecting property developers.

Under the current law

Currently, property developers receive the purchase price inclusive of any GST from a purchaser at settlement and remit the GST component to the ATO as part of their Business Activity Statement (BAS).

The new regime seeks to address the Government’s concern that some property developers are avoiding paying GST collected at settlement.

The new regime

From 1 July, purchasers of “new residential premises” or “potential residential land” will be required to withhold an amount for GST at settlement and pay it directly to the ATO.  Purchasers effectively become a tax collector.  Where parties are using the margin scheme, the purchaser will withhold a smaller percentage of the purchase price (currently 7%).  A seller must give a purchaser at least 14 days notice that GST will need to be withheld, otherwise it is an offence attracting financial penalties.

Property developers will still report GST liability for sales in their BAS.  However, the ATO will subsequently credit the developer once the withheld GST is received from a purchaser.  We anticipate contractual changes will be required so a seller stays in control of remitting the GST cheque to the ATO, ensuring they receive a credit for the GST collected at settlement.

What contracts are affected?

Contracts for the sale of “new residential premises” or “potential residential land” entered into after 1 July 2018 will be subject to the new regime. Contracts entered into before 1 July 2018 that settle before 1 July 2020 will not be affected (but contracts which settle after 1 July 2020 will be).

What does this mean for property developers?

The changes will impact contract drafting, and may affect commercial issues such as cash flows and repayment of loan facilities.  Developers should seek advice on their contracts and should review any impact on cash flow, pay down of loan facilities and potential impacts on payout clauses under joint venture or development agreements.  Positively, the changes should eliminate arguments with financiers about who will retain GST from settlements.

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About Tucker & Cowen Solicitors - Brisbane

Tucker & Cowen Solicitors has vast experience in commercial litigation and dispute resolution.

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