When does the new GST withholding on new residential property start…

I have already written about the changes to GST for property developers from 1 July 2018. But everyone is already asking me about the transitional rules. So here is the summary…

First, the requirement for the purchaser to withhold 1/11th of the consideration and send it to the ATO directly applies in relation to supplies for which any of the consideration is first provided (other than consideration provided as a deposit) on or after 1 July 2018.

Second, there is an exception to this general rule. This is where the contract was entered into before 1 July 2018, and consideration for the supply is provided before 1 July 2020.

Here is an example from the draft Explanatory Materials.

On 11 May 2018, Cindy and Maurice enter into a contract for a new home unit with BaileyHomeCo, a developer, for $650,000. Settlement occurred when the unit development was completed on 31 May 2020. Since this is within the transitional period, Cindy and Maurice pay the entire purchase price to BaileyHomeCo that will remit the GST to the ATO when their next BAS is due in July 2020.

If settlement occurred on 28 September 2020, the transitional period would not apply and Cindy and Maurice would pay $59,090 (being the GST component of the purchase) directly to the ATO. Cindy and Maurice would pay $590,910 directly to BaileyHomeCo as the purchase price.

There is one more transitional rule. This applies where there is an arrangement:

  • That was entered into before 1 July 2018, between the entity that makes the taxable supply and one or more other entities, and deal with the distribution between the parties of the consideration for the taxable supply; and
  • The arrangement provides for the distribution of the GST liability to the supplier, for the payment of the supplier’s liability to GST for the taxable supply; and
  • Were the distribution to occur, they must result in the parties not being in the same position as they would be if the withholding amount was not paid.

If such an arrangement was entered into before 1 July 2018, the transitional rules provide that a distribution that would result in a windfall gain should not be performed, and that parties to the arrangement are discharged from all liability to pay the GST liability amount to the supplier.

There are also transitional arrangements in relation to the requirement that the supplier has to notify the vendor of whether residential premises are new residential premises. Where a contract is entered into before 1 July 2018, but a supply is made after that day, the supplier will not be required to comply with these notification requirements.

 

 

 

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
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