Draft legislation setting out the new GST withholding regime for residential development sales has been released and is expected to commence from 1 July 2018.
Although the ATO is yet to outline the mechanisms for remitting GST and reporting liabilities and credits, there are some notable changes between the exposure draft.
The changes are primarily administrative and include:
- A developer is no longer required to give 14 days' notice to a purchaser to withhold the GST prior to settlement. However, this notice must still be given before settlement.
- The purchaser is no longer required to give five days' notice to the ATO before settlement of the amount to be withheld. However, notice to the ATO must be given before settlement.
- The purchaser is not liable for a civil penalty if the withholding amount is not remitted when the purchaser gives the developer a bank cheque for the withholding amount in favour of the ATO. This is a common sense approach to reduce the risk to developers by allowing developers to collect the GST cheque at settlement and then deliver to the ATO.
- The withholding amount is calculated on the purchase price as noted in the contract (exclusive of settlement adjustments), and if no purchase price is stated, then on the market value of the property exclusive of GST.
- While it was thought developers would need to apply for a refund of GST withheld and remitted to the ATO if they wanted to apply the margin scheme, there will be a default rate of seven percent where the margin scheme applies.
Our Real Estate team will keep you up to date as the draft legislation makes its way through Parliament.