GST changes targeting ‘dishonest developers’ in effect

GST changes targeting ‘dishonest developers’ in effect - Smart Property Investment

 

The measures are quite extreme to overcome a minority that have done the wrong thing.

More forms and red tape for the property industry.

 

The article assumes that the developer is liable for gst.

What happens to those tgat developed that are not gst registered, had a genuine change of circumstance and then had to sell. As far as i know, they fall under cgt rules instad of gst. How will it work

 

Dumb questions without notice:

1. Who is administrating the withholding, collection & payment? Agent? Vendor solicitor? Purchaser solicitor? Financier?
2. What are the remittance obligations?
3. Does the party collecting the gst need to be registered?
4. Is it a straight 1/11 & screw the developer If they're claiming the margin scheme? (cashflow shortfall central)
5. Are contracts of sale being updated to reflect the change?

 

I would imagine the developer needs to inform the settlement agent the GST component of a sale to be transferred to the ATO.

Doesn't really require any extra work, and keeps a level playing field between the developers.

 

That is a good example of tax advice. I would generally say it is liable to GST.
You assume a developer has a CGT asset. I dont agree.

A contract for sale of new residential premises would always be subject to GST if sold by a developer. Only if the annual sales were under $75K would they not require to register. Changed intent means nil. Once you start a plan to develop you are caught. Even selling vacant land before doing a dev triggers GST but with sound tax advice may be reduced to almost Nil unless you bought from a land developer yourself.

 

GST property settlement changes

1. Lawyers and conveyancers as part of settlement. Not unlike foreign vendor withholding on sales of $700K + at present. A similar scheme.
2. To Be Finalised. The vendor will provide details to the buyer so excessive GST isnt a concern. If the vendors ignores the issue then 1/11th would be assumed to be the value. eg If a vendor is unregistered for example. Solicitors would likely identify that well in advance. I expect solicitors will ask vendor for a tax invoice or a invoice showing the GST (Not a tax invoice if the margin scheme is used but will still show the GST $)
3. No. They are merely withholding the GST to pass to the ATO. It is just a withholding process that imposes the task of tax collection to the buyer. Note it also brings forward tax payments by as much as 120 days. (Sneaky)
4. The vendor will use a process to vary so that if they use the margin scheme for example they can vary the GST down to its actual value.
5. Yes. There is a phase in and some existing contracts will be unaffected. The amended legislation includes a transitional arrangement that excludes sale contracts entered into before 1 July 2018 as long as the property transaction settles before 1 July 2020. I would expect all standard contracts after 1 July will reflect the new rules. Even if they dont, they should have all those clauses and the new law applies even if the contract form is the old version.

Its not going to impact many for a while.

Solictors and conveyancers will soon be up to speed on the process.

 

could it be that the term "developer" referred to in the article which is confusing me?
to me a developer is someone who develops a property and sells them, more like a business.

do you also call someone who buys land, builds on it to rent out a developer? (it is under this assumption i asked the question about change in situation that merits sale of property)

 

I think you are confusing CGT vs income/company tax. CGT may be applicable if not carrying out an enterprise and have built for long term investment. Income or company tax (depending on entity/structure) will apply for anything that is not a long term investment.

GST will always apply to both investment and enterprise if sold within 5yrs unless they don't meet the requirements for registering for GST.

Where intentions change GST will still apply.

PS I'm not an accountant so my explanation may be full of holes

 

Investors are unaffected. This impacts those liable for GST. Each taxpayer determines GST liability

 

I think it could effect investors because they must withhold the GST on certain transactions and if they don't guess who could be liable.