Getting our heads around new GST regime

New GST laws targeting property developers come into effect on 1 July. Is your company prepared? Taxation specialist Ross Sicuro, director of Moore Stephens, shares his insights.

Announced in the 2017 federal budget, the new GST laws promise to crack down on ‘phoenix activity’ – where companies strip the assets and cash from a business before liquidating and restarting it under a different name.

The business rises from the ashes, but leaves creditors, including the ATO, high and dry.

The Australian Government estimates the new remittance arrangement is expected to collect around $650 million in GST revenue over just four years.

“The new measures have been introduced in response to the phoenixing strategies of dodgy developers – but they add another layer of compliance and administrative burden to everyone in the industry,” Sicuro says.

“The new measures require purchasers of new residential premises and residential subdivisions to remit GST directly to the ATO as part of the settlement process,” Sicuro explains.

“Developers are then required to report the actual GST liability in activity statements and claim a credit for GST paid by the purchaser at settlement.”

Depending on the contractual arrangements, the withholding rate can be anywhere from seven per cent to one-eleventh of the contract price.

“The law allows for a two-year transitional arrangement, which means contracts entered into before 1 July 2018 won’t be affected by the change, as long as the contract settles before 1 July 2020,” Sicuro explains.

“But we will undoubtedly see an increase in the compliance burden faced by developers and advisors involved in the settlement process.”

For example, developers of new residential premises and residential subdivisions will be required to notify purchasers in writing of certain matters before settlement – and non-compliance attracts penalties from the ATO.

Feedback from Property Council members suggests the move will affect cash flows, although the Property Council recognises this needs to be balanced against the ATO’s concern about integrity. 

The Property Council had sought an exemption for long-standing market participants who had a good track record of compliance and meeting their tax obligations in an effort to remove administrative compliance for individual purchasers; however, this has not been accepted.

“Up until now, developers have received the full consideration of the contract value and could use this in their cash flow until a Business Activity Statement was due. They will no longer have access to the GST component.”

“The secret to success is simple. Get the right tax advice,” Sicuro concludes.

Originally appeared on Property Council Australia

Information provided in this article is general in nature and does not constitute financial advice. You should consult your financial planner prior to making any investment decisions.