The issue of paying GST in relation to the sale of new residential property can be a complex area which continues to present challenges. Here we put the spotlight on recent proposed changes to GST on property and the implications for developers, conveyancers and purchasers. Currently, GST is included in the purchase price of a new residential property and it is the developer who pays any GST.
However, it has been reported that some developers are failing to pay GST (despite having claimed GST credits on their construction costs).
Under a measure announced in the Federal Budget in May 2017, purchasers of new residential properties or land will be required to collect and pay GST to the ATO when they buy. The Government proposed this change to start on 1 July 2018, but there have been no further public developments on this measure since the Budget and no draft legislation has been released, as at late August 2017.
Recent court case
In the latest development of the saga, the purchasers of new residential units in a Canberra development have commenced a class action to recover the GST they paid to the developer on their purchases. They allege that the units were input taxed rather than taxable – and so no GST should have been charged.
If these allegations are upheld in court, the case will represent yet another example of ongoing problems involving property developers and GST.
How will purchasers be affected?
Purchasers will be liable for paying GST directly to the ATO, which has never happened before. Most residential property buyers use conveyancing services to complete their purchases, and it seems that the Government hopes that these people will not notice much change.
How will conveyancers and developers be affected?
The Government hasn’t commented on the implications of the proposed measure for conveyancers and developers, but they may face additional compliance costs. Certainly, developers will need to change all future contracts to protect themselves if the changes are implemented.
How will GST revenue be affected?
Interestingly, the Government’s announcement stated that the proposed change would have a significant impact within Australia’s GST system.
The change is estimated to increase GST revenue by $660 million, and associated payments to the states and territories (after administrative costs) by $1.6 billion (yes, billion!) over the four-year forward estimates period.
The difference is because the timing of collection and recognition for GST on the property purchases would change.
Talk to us
We expect the Government will need to consult and give more information on this process before the confusion is sorted out. In the meantime, if you are either a purchaser of new residential property or a property developer, contact us to discuss how we can assist you with accounting for GST.