GST Withholding Legislation for the Builders and Developers
From July 1st, 2018, changes to GST withholding requirements will be implemented for new residential premises and new residential subdivisions. These requirements will ensure payment of GST obligations to the ATO on or before the date of settlement.
Before the Changes
Suppliers, such as builders or property developers, of new residential premises or subdivision of potential residential land, were required to withhold the GST amount from the contract price and pay the GST to the ATO through the lodgement of a Business Activity Statement. Some suppliers, however, have been failing to pay the GST owing to the ATO.
The new changes aim to remove the time-lag between the settlement date and payment of GST to the ATO, reducing evasion of GST payment.
After the Changes
The new legislation applies to GST withholding requirements for purchasers of:
New residential premises - have not previously been sold as residential premises,
Subdivision of potential residential land – does not yet contain building that are residential premises. Withholding requirements apply for each time the land is supplied, not just for the first supply.
The withholding requirement does not apply if:
The purchaser is registered for GST and acquires the land for credible purposes,
The residential premise is commercial in nature,
The land contains buildings for commercial purposes,
Residential premises are created through substantial renovation of existing premises.
Payment to the ATO
Before the settlement of residential premises or potential residential land is made, the supplier is required to provide their ABN and give written notification to the purchaser to ensure they comply with withholding requirements. The notification should include the amount to be withheld and the date of payment.
The purchaser will be required to withhold the GST amount of the contract price at settlement and remit the GST amount withheld to the ATO on or before the date of settlement (not the date of deposit).
The GST amount to be paid to the ATO is a portion of the contract price of the new residential premises or subdivision of potential residential land. The amount is dependent on:
If the property sale is subject to a marginal scheme, the purchaser must withhold 7% of the contract price, or
If a marginal scheme does not apply, the purchaser must withhold 1/11th of the contract price.
The supplier will be required to report the GST liability in the BAS in the period of the relevant sale. A credit will be applied as the amount of GST withheld and remitted to the ATO by the purchaser. The credited amount will be applied through the lodgement of the BAS and will offset the GST liability.
Effective date and Transitional Period
The amendments are effective for taxable supplies where consideration (not including payment of deposit) is provided on or before 1st July 2018.
Through the two-year transitional period, the amendments will not apply where the supply occurred before 1st July 2018 and consideration is provided before 1st July 2020.
This information is not to be relied upon as laws are constantly changing. Please contact us or speak to your accountant for further advice regarding this.
The effective date is fast approaching, please contact the BuilderBooks team to discuss and plan for your current and future tax needs.
This information is not to be relied upon without speaking to your accountant, tax agent or financial adviser depending on the advice.