You may remember as part of the 17/18 Budget the Federal Government announced changes to how GST collected on ‘New Residential Property’ would be passed onto the ATO. Well the exposure draft of the legislation has been released so we now have some more details on the changes the government is looking to make.
It is proposed that from 1 July 2018, purchases of new residential premises and new residential subdivisions will withhold the GST portion from the seller and remit it directly to the ATO as part of the settlement process.
There will be a two-year transitional arrangement – meaning that contracts entered into before 1 July 2018 will not be affected – as long as they settle before 1 July 2020.
What does this mean?
For Purchases:
- It means that it’s important that the GST component of the contract is clearly stated so your solicitor can handle settlement proceeds accordingly
- It is not know whether purchasers will experience an increase in conveyancing costs due to additional work required by solicitors
For Property Developers:
- It means that full settlement proceeds won’t be received, instead the GST component will be paid directly to the ATO at settlement,
- Managing cash flow becomes more important as you won’t have use of GST portion of sales for the period between settlement and BAS lodgement.
- If you are selling under the margin scheme it becomes important to clearly state the GST component of sale on the contract (the default if this isn’t done is 1/11th of the sale proceeds)
- You will receive a credit on your BAS for amounts paid at settlement (not clear how you will check this balance)
- Contracts entered into before 1 July 2018 and settled prior to 1 July 2020 are exempt from the proposed new measures
