In December 2017, Nexia Edwards Marshall released a Taxation Update regarding the proposed GST withholding rules on new residential premises to curb developers engaging in “phoenix activities”.
From 1 July 2018 the new GST withholding rules will apply. This will result in the purchaser being responsible for withholding an amount of GST applicable to the property purchase and remitting this amount direct to the ATO on settlement.
Impact of the new GST withholding rules on property developers
For our property developer clients, this can cause cash flow issues as you will no longer receive the full settlement proceeds on the sale of property.
The GST amount withheld by the purchase and paid to the ATO, will become a GST credit on your next business activity statement lodged after the property has settled.
Please keep these new GST measures in mind when budgeting your next property development as it may cause cash flow and compliance issues.
How the measure will work from 1 July 2018
Step 1: Supplier notification
The supplier must provide the purchaser with the following:
- the amount they must withhold;
- when they must pay to the ATO; and
- supplier entity name and ABN.
Step 2: Lodge Form One: GST property settlement withholding notification form
Step 3: Lodge Form Two and Pay: GST property settlement date confirmation form
Note: The purchaser can authorise their conveyancer or solicitor to prepare and lodge these forms on their behalf. We have a trusted network of conveyancers and solicitors that we can refer you to please ask Paul Dimasi or your Nexia Edwards Marshall Advisor.
The GST amount a purchaser must withhold and pay to the ATO at settlement is either:
- 1/11th of the contract price (for fully taxable supplies);
- 7% of the contract price (for margin scheme supplies); or
- 10% of GST exclusive market value of the supply (for supplies between associates for consideration less than GST inclusive market value).
A purchaser who is not conducting business, does not need to register for GST just because of the GST withholding requirement.
Please note contracts signed prior to 1 July 2018 have a concessional treatment if settlement occurs before 1 July 2020.
How can Nexia Edwards Marshall NT help you?
For any questions or to discuss any of the above in relation to your situation, please contact Sarah McEachern or your Nexia Edwards Marshall NT Advisor.