GST Withholding on Property after 1 July 2018

Discussion in 'Accounting & Tax' started by Paul@PAS, 9th Aug, 2018.

Join Australia's most dynamic and respected property investment community
  1. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    I just experienced my first GST withholding issue and its not great.

    For all budding developers out there its likely to add to costs. Conveyancers and solicitors have been instructed that only the taxpayers tax adviser can give instruction regarding this. Its not always that simple. The first questions that are asked concern the contract - Legal advice. So extra advice is really needed. Before a contract can even be signed !!

    And it applies to ALL sales of residential property or land. New or old (ie property not affected by GST can also be caught). In many cases its simple and if the seller isnt registered for GST or required to be (ie existing residential premises) then basic advice would suggest the contract answer is No to the withholding issue. However thats tax advice I have been told by some conveyancers....But when a vendor is required to be registered then the fun starts.

    So there can be expected to be additional costs for :
    1. Initial advice on the contract to be signed for exchange. It needs to address ABN, GST registration, use of the margin scheme and whether the supply is taxable as well as its date and a range of factors such as whether the BUYER can even claim a tax credit (very limited instances!!) ; and
    2. Added complexity when the sale settles and the next BAS is required. The GST withheld will not be claimed, instead it is automatically released to offset the debt of the final GST reporting and credited at that time. Given that its either 1/11th x the sale value OR 7% if the margin scheme is used most may find the withholding slightly excessive. So prompt BAS lodgement is important if the excess is to be refunded.
    3. Are the entity bank details up to date ? Refunds MUST be paid by EFT and in many cases they may not be registered with the ATO.
    4. The purchaser will also likely face higher costs for two forms that they must complete and lodge with the ATO. Can be completed by the conveyancer online. Some clever thinktank has invented two unique names for these. They are called
    FORM ONE and FORM TWO....Bloody brilliant.
    Form One is lodged to advise the ATO of the withholding obligations etc and
    Form Two is how the buyer pays the ATO and assists them with their accounting.
    5. Follow up for mistakes made where the withholding tax fails to correctly credit in the correct tax period leaving a second debt due rather than a refund. Who chases this ? I wont be doing it for free. Hope the system works smoothly or long periods on the phone could occur.
    6. Very costly advice for those who incorrectly overlooked or ignored the issue of GST until the conveyancer or solicitor tells them to go get tax advice. These are going to be the ones with terrible records I expect.
    7. Issues if a delayed settlement occurs. If its a few days it probably has little impact BUT if it changes the tax period for GST reporting you may have a messy issue. eg Planned settlement is 23 December. Settlement occurs 5th January.

    I can see benefits of this change
    1. The number of people who incorrectly think GST wont apply should reduce. A sound reason for bringing the system in play...Only time will tell if it helps with tax revenue.
    2. People may be less likely to overlook the margin scheme now. They may be forced to get advice early when they can make the choice.

    GST at settlement
     
    Last edited: 9th Aug, 2018
    qak, SSG and EN710 like this.
  2. Mike A

    Mike A Well-Known Member

    Joined:
    24th Jun, 2015
    Posts:
    2,656
    Location:
    UNIVERSE
    Developers also need to consider whether it is worth moving to being a monthly remitter for gst purposes for cashflow putposes.
     
    RPI likes this.
  3. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Strategy 1 = Monthly

    Strategy 2 : Bring fwd BAS . I called ATO and they manually issued a Sept BAS. Client wants to lodge now. His project wrapped up July and OTP sales all settled. He wants his cash asap. We will lodge early next week.

    Strategy 3 : Make sure banking details are up to date with ATO.

    Strategy 4 : Avoid paper BAS forms. Delays matters. BAS or Tax agent may assist
     
  4. Aaron Sice

    Aaron Sice Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,588
    Location:
    Ocean Reef, WA
    I'm really starting to serious consider if Australia is the right place to be doing business.
     
    RPI likes this.
  5. Mike A

    Mike A Well-Known Member

    Joined:
    24th Jun, 2015
    Posts:
    2,656
    Location:
    UNIVERSE
    Ive done business in the philippines and vietnam. You think australia is bad. The paperwork and compliance in both countries is 4 times what is required in australia. In both countries all companies must have an annual audit. Even if you turnover 100k aud. Alll of them. And that costs around 2k aud minimum.

    Almost 20 different forms to lodge every month in the philippines. And then quarterly returns. And then annual returns. Australia is easy.

    Local government business taxes plus company taxes. More forms and paperwork.

    3 local directors who also be shareholders and they all want a cut of the action to take those roles. Corporate secretary must be a local. That persons signs the legal docs. Fees for that pleasure.

    Lawyers have acceptance fees. Yes they charge you just to have the privelege of using them. They all do it.

    Its an accountants and lawyers dream.

    If you think australia is a challenge you havent done business in asia.
     
    Last edited by a moderator: 20th Aug, 2018
    Aaron Sice likes this.
  6. Aaron Sice

    Aaron Sice Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,588
    Location:
    Ocean Reef, WA
    I take it all back.....but refuse to put the lid on my peanut butter jar and leave my hermit cave.
     
    Mike A likes this.
  7. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    CGT has no general business impact and we have exceptionally generous small business cgt concessions. Many countries in asia have far more discriminating taxes for non locals. Almost prohibitive. Even what seems simple in NZ can have onerous rules for some