GST & Property Developers

The Federal Government has recently announced that it will be targeting property developers to strengthen compliance with the GST law in a radical move to see purchasers remitting GST to the Australian Taxation Office (ATO) as part of the settlement process.

Under the current law, the ATO is finding that property developers are failing to remit GST to the ATO despite claiming input tax credits on their constructions costs.

It is not clear how the proposed legislation will affect existing off the plan contracts where settlement occurs post 1 July 2018 although it is anticipated that the new law will only apply to contracts entered into after 1 July 2018.

Whilst any such legislation is yet to be introduced, the key take out points from the proposal are as follows:

  • If passed, the law will be effective from 1 July 2018
  • It will apply to newly constructed residential properties and new subdivisions
  • It will be the purchaser’s liability to withhold GST at settlement and remit it to the ATO

What does this mean for developers?

  • Potential cash flow and funding issues
  • It is not clear what rights of review the developer will have in the event that the purchaser overpays the GST liability
  • It is not clear how the complexity of calculating and applying the margin scheme will be dealt with, where applicable

What does this mean for lenders?

  • Lenders will no longer be in a position to demand 100% of sale proceeds at settlement as the sale proceeds will be reduced by the amount of the GST liability
  • It may affect lender’s security

What does this mean for estate agents?

  • Agents will no longer be in a position to demand sale expenses and commission be paid at settlement as the priority will be to pay the GST liability and the discharging mortgagee

Whilst the Federal Government has not yet released any draft legislation, it remains a controversial and hot topic that will no doubt be raised with industry professionals prior to being adopted. Watch this space!

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