Massive GST changes for Developers

Residential property developers will face extra GST, cash flow restrictions, extra compliance and more conflict with purchasers under proposed legislation to tackle avoidance of GST. Recently released draft legislation (to apply from 1 July 2018) will require purchasers (including private individuals) of new residential premises and potential residential land to withhold 1/11th of the sales price and remit that amount to the ATO by no later than the property settlement date.

At least fourteen days prior to settlement, the developer will be required to provide a written notice to the purchaser indicating that 1/11th of the contract price must be paid to the ATO by the purchaser. Developers will not receive that amount hence lose critical funding that is often used to meet borrowing obligations until their relevant BAS is due.

Where the actual GST on the sale is less than 1/11th because of the margin scheme, the developer needs to apply to the ATO for a refund of the excess tax withheld. If the purchaser does not pay the tax withheld to the ATO, the developer will lose credits and refunds hence will incur the unpaid tax.

Lawyers are going to have fun with this one.

 

Nasty stuff.

Happy to have offloaded my developments and moved on

USA is much more investor friendly environment for developers/investors.

MTR

 

However it's a much longer commute to my Day Job.

That is a ridiculous impost on developers, to strip close to 50% of the gross margin at the end of the process.

 

I am wondering how most purchasers will actually fund this - will the bank do a partial settlement? What happens if settlement does not proceed?

 

@MikeLivingTheDream - is there a link to the legislation?

 

Yeah Mike - I'm expecting some smaller developers to face issues. One positive aspect I hope will be that the vendor will need to interact with the solicitor earlier and then greater diligence is given to GST and tax. The danger I see is not all solicitors are great on developer taxes and could lead to some devs relying on solicitor when specific tax advice may also be needed.

I'm waiting to see how the process will work in practice. Esp how will the developers tax account get credited. ie what happens if the buyers solicitor fails to credit. And then how will sales be reported ?? I imagine same BAS reporting will occur but how will the credit be dealt with.

The GST will just become a disbursement and paid to ATO in place of developer. Same process as used when ATO garnishees proceeds on property sales at present or holding funds to repay a bank loan or expense arrears

 

OK thanks - I was thinking the GST had to be paid in advance of settlement, if it is just a settlement disbursement then there's no issue.