GST Changes to New Residential Premises


In May 2017 the Federal Government Budget included proposed measures to shift the responsibility for remitting GST on the sale of new residential premises from property developers to purchasers. 

No further commentary or guidance has been released since the budget announcement, however the proposed changes are intended to take effect from 1 July 2018.

With the risk that any put and call option arrangements entered into in late 2017 will cover supplies of new residential premises post 1 July 2018, developers should be mindful of what the proposed measures mean for them.

Below is a summary of the proposed measures, and an outline of what actions developers should consider taking to protect their interests.
What transactions will be affected
The proposed changes simply refer to developers of "new residential premises".  Therefore all developers, irrespective of the scale of development activities, should be conscious of the proposed changes to the law.
Why the change

The government is concerned that there is a risk to GST revenue in circumstances where developers claim input tax credits during the life of a project, but go into liquidation on the completion of a project leaving unpaid GST liabilities owing to the Australian Taxation Office (ATO).  By implementing this measure the government aims to increase GST revenue collections by $660 million over the next four years.
When are the proposed measures to take effect?
Whilst the budget papers refer to the measures taking effect from 1 July 2018, it is not yet clear how the new rules will apply to:

  • existing off-the-plan contracts where settlement will occur after 1 July 2018,
  • contracts entered into between 9 May 2017 (budget night) to 1 July 2018 where settlement will be after 1 July 2018, or
  • put and call options which are exercisable after 1 July 2018.

How could the changes be introduced
There is currently no draft legislation, however it is thought that the proposed changes could be implemented in one of two ways:
  • introducing a withholding mechanism – e.g. an interim withholding burden placed on the purchaser,
  • which is then applied towards the developer’s GST liability, or
    making purchasers directly liable for the GST.

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