As of 1 July 2018 there is another change to how new residential property sales are treated. Purchasers will now need to withhold GST from the purchase price on behalf of the vendor, and remit it to the ATO. 1/11th of the purchase price is required to be withheld, unless the vendor is using the margin scheme, in which case the required amount is 7%. These rules will apply to the sales of house and land packages, sales of land only, and those where the construction is a separate contract. A long term lease is also treated as a sale under the provisions (long term being more than 50 years).
To assist purchasers with this new obligation, the vendor is required to provide a written notice before the date of settlement. This notice must state whether the purchaser is required to withhold and make a payment to the ATO and if so, the vendors legal name and ABN; amount required to be paid; and when the amount needs to be paid. Failure to provide the notice is an offence and can be subject to penalties of up to $21,000.
If the purchaser fails to withhold and pay the amount to the ATO they may be liable to a penalty equal to the amount that should have been withheld. However, no penalty will apply if the purchaser relies on a notice provided by the vendor which states that they are not required to withhold.
There are transitional provisions where a contract is entered into before 2018 provided settlement occurs prior to 1 July 2020.However, existing contracts where consideration is not provided until after 1 July 2020 will be subject to the new rules.
These changes present developers with practical, logistical and legal issues. It will be important to obtain tax, accounting and legal advice to ensure property development activities are carried out in the most tax effective manner. Our team of specialist property advisors is ready to assist you, please contact us for further information on 03 8393 1000.
Rebecca Mackie, Partner, Paris Financial