New GST withholding regime

Discussion in 'Accounting & Tax' started by Mike A, 12th Jun, 2018.

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  1. Mike A

    Mike A Well-Known Member

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    Sellers of residential premises and residential land need to take immediate action to be ready for the new GST withholding regime commencing on 1 July 2018. The new regime applies to most taxable sales of new residential premises and potential residential land.

    Two unprecedented obligations arise under the new regime, being:

    ▪ A seller of any residential premises or potential residential land will usually be required to notify the buyer whether the latter must withhold a GST component from the payment made at settlement, and if so

    ▪ the buyer is required to withhold that GST component and pay that amount to the ATO instead of the seller. The GST amount withheld will be 1/11th of the contract price or 7% of that price if the sale is under the margin scheme.

    Thus, a seller of taxable residential properties will, in future, often take a substantial cash flow hit at settlement. Provided the buyer remits that GST component to the ATO, the seller will receive credit for it when they lodge their BAS reporting the sale. However, usually that will be 2-4 months later.

    [​IMG]
    Your Next Step: Most properties currently listed for sale will be excluded from GST withholding if a contract for their sale is entered into before 1 July 2018 and it settlesbefore 1 July 2020. Thus, developers of multiple taxable residential properties can reduce their cash flow hit if sales contracts for as many units or lots as possible are executed by 30 June 2018. Some may want to offer a small discount to prospective buyers to get sales across the line by that date.
     
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  2. Anthony Brew

    Anthony Brew Well-Known Member

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    Does the GST component mean this will apply only to new properties?
     
  3. Paul@PAS

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

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    This new regime only applies to taxable residential properties and as Mike points out many existing contracts and many OTP contracts currently in play are initially excluded. Otherwise applies to new contracts made on or after 1st July 2018 or to past OTP deals which settle after July 2020.

    I wonder what occurs of a OTP contract is varied by mutual consent.

    I suspect the increased complexity will add to some conveyancing charges.

    I also suspect some developers will soon get better at their administration and seek to complete and lodge their BAS on time if a cashflow impact affects them. In some cases it may assist to change the GST registration basis to monthly rather than quarterly. And use of options on land may also avoid GST and withholding.

    Explanation of the new online tools the conveyancers will use is here GST at settlement
     
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  4. christianeatouggh

    christianeatouggh Member

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    Personal question - and yes i have asked my accountant for advice too:)

    I have just subdivided my PPOR and am considering selling the backlot (land only). I acknowledge that this will be a CGT event; just wanted to check if i would need to pay GST as well (or with hold GST) as per the July 1 changes?

    chris
     
  5. RPI

    RPI SDA Provider, Town Planner, Former Property Lawyer

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    If contract is entered after 1 July then I believe this would count as new property - still looking at finer details though and don't have time to do so now.
     
  6. Paul@PAS

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

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    Lets address the first issue - GST.

    Are you required to be registered and hold an ABN ? Personal tax advice needs to be explored. If so, then the contract will need to contain the notice to potential buyers. Withholding only applies if the land sale is $700K AND the buyer is one who triggers the rule (non-resident issues rather than tax residents. A resident taxpayer can use a process to avoid withholding instead.

    Land intended for potential residential premises is caught
     
  7. I'm Dave

    I'm Dave New Member

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    Does this make it pointless now to enter the property market as an investor? I've been reading some things on it, and from what I've read, even if you renovate your home and sell, it may be considered running an Enterprise, and would have to register for GST, then collect/pay 1/11th of the value (so, 9c on the Dollar).?

    Thought the property market was already high, and people finding it expensive already buying into it, now it's going to make it more costly?
     
  8. Sackie

    Sackie Well-Known Member

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    I just avoided ( was exempt really) GST on a VERY complicated sales contract. When my accountant called me to alert me of how lucky I am, my heart almost stopped after hearing 'GST' but then started ticking normally after she said 'exempt'.

    Don't know why she called my mobile when I was just in the living room and she, the kitchen .
     
    Last edited: 4th Jul, 2018
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  9. Scott No Mates

    Scott No Mates Well-Known Member

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    Does your wife know about this? :cool:
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    No.

    The GST laws haven't been changed in this respect. It is just the withholding on sale that changed.

    Renovating your home generally won't amount to an enterprise.
     
    Last edited: 4th Jul, 2018
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  11. Mike A

    Mike A Well-Known Member

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    its when your mistress calls from the bathroom and your wife is in the kitchen it gets kinda interesting
     
  12. Mike A

    Mike A Well-Known Member

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  13. Sackie

    Sackie Well-Known Member

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    [​IMG]
     
  14. Paul@PAS

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

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    Correct - The terminology for the new withholding laws adopt a broad view. A old dump of a resi home on land will likely also be caught if its not habitable residential premises. The withholding laws refer to new resi premises within the normal GST meaning as well as a new expression.... "potential residential land". New resi premises created by substantial renovations may be liable to GST but are excluded from withholding of GST. There is also a exclusion that applies to developers who BUY new land and intend to claim tax credits.

    However the first step of the exercise is to determine if it is an enterprise. If you bought the property and fairly promptly sell of a part of the land I would likely consider it an enterprise. However lets say old Mum and dad and their large block has been a burden to maintain and they need the $$$ its highly likely (not certain) that their part sale of the excess land is a mere realisation. Still subject to CGT but not an enterprise. No GST and therefore no withholding issues.
     
  15. thydzik

    thydzik Well-Known Member

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    that 7% if using the margin scheme is annoying. couldn't we just calculate the GST payable at settlement.
     
  16. Paul@PAS

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

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    No its about withholding and its 9.09% or 7%. As a developer you then lodge the real BAS and use the real numbers and they credit the withholding. Timing between settlement on property and BAS lodgement can be as long as 150 days in many cases. You get a refund perhaps. Its a motivator to lodge a BAS asap.

    Note this process has a secondary issue - Now the ATO can focus upfront compliance on developers. They will likely now ask for the workings and calcs and ask questions about input taxed rental and things like that which may expose audit risks. There will be risk indicators that occur with this and allow ATO to risk assess and audit on the fly.

    eg ATO may call and provide their developer questionnaire which asks what was built and whats happeening to all the units etc ...It has a number of traps for the unwary. They may ask for your GST summary etc for the period and your tax invoices for top three tax credits. Its not unusual to find a defect in some tax invoices (eg undated, no address or ABN for the recipient etc) and they will cross match to the contractor to see they also included that income and GST in their BAS.
     
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  17. I'm Dave

    I'm Dave New Member

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    I did a bit of Googling, and read that, subdividing land, and putting a granny flat will do something with the GST... but even renovating a house to increase value etc.. can now have GST implications too ?
     
  18. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Nothing has changed with this, it was always the case.

    Substantial renovations mean the property could be classed as new. If an enterprise was being conducted then GST would need to be remitted to the ATO on the sale of that property.

    The key is 'enterprise'. This issue won't arise in most cases.
     
  19. Paul@PAS

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

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    Google isnt a qualified tax adviser. Subdivision and a GF are unrelated. A subdivision occurs to land. What you do next may be important to the concept of enterprise. A GF cant be added to vacant land.
     
  20. alicudi

    alicudi Well-Known Member

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    This is a little confusing for me but would like to explain my scenario and way of thinking which surely isn't correct.

    I put a deposit on an OTP residential block of land in August/September 2017 that I intend to build on and live in, with titles and settlement to occur sometime between June & October 2019.

    The agreed purchase price is $189,900 and it does have "margin scheme" inserted into the contract. As I paid my deposit much earlier than 01/07/18 and settlement will occur way before July 2020 does this mean I just received a 7% discount on the purchase price of the land and my conveyancer will only need to pass on $170,910 to the developer selling the land and no GST at all to the ATO?

    Regards,

    alicudi
     

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