Jun 2018 2 Minutes
GST Collected at Settlement For New Residential Premises and New Developed Land
The new GST withholding rules for New Residential are now law and apply from 1 July 2018 on contracts entered into after this date.
Designed to counter property developers who use insolvency to avoid remitting GST on the sale of new residential premises, these new measures require purchasers of new residential premises or potential residential land to withhold an amount from the price for the supply and pay that amount to the ATO on or before settlement.
The three key areas that will be impacted are:
- New property development arrangements; and
- Settlement process.
The fact that suppliers (developers) no longer receive the GST amount for the period between settlement and BAS lodgement will reduce cash held by the business and may impact working capital requirements and banking covenants. This could take even longer if the ATO decides to conduct a BAS review. This cash flow impact should be modelled into any new residential developments that will be sold post 1 July 2018.
The new rules will also impact the way landowners and developers contract for and pay for development services such as residential property. Although transitional provisions apply for contracts entered before 1 July 2018, care must be taken for contracts entered into after this date so that sales subject to the GST withholding rules adequately provide for the withholding rules.
The settlement process will require more administration by both vendors and purchasers. Please refer to table 1 below.
How will it work?
Table 1 below describes how it works and the obligations for suppliers and purchasers of new residential property and potential residential land.
Table 1 – Developer and Purchaser Obligations
Generally, if the sale contract specifies an amount that is the price of the supply (ie. the contract price) the withholding amount is calculated as 1/11th of the contract price. If one of the following exceptions arises, the withholding amount must be calculated as per the table below.
Table 2. Withholding Rates/Amount Purchasers Pays to ATO
If you have any queries regarding the above, please contact Juanro on 9364 9988.