Changes to GST rules for new residential premises have been passed by the Parliament houses and have already received Royal Assent. Starting July 1st, buyers of new residential premises or subdivisions are required to remit the GST on the purchase price directly to the ATO as part of the settlement process. It is important to contact an accounting firm to find out more about this development.
GST is currently included in the purchase price and the developer is the one who remits the GST. However, the ATO is concerned that some developers do not remit the GST even after claiming GST credits on their construction expenses.
There are “phoenix operators” who establish special purpose companies which will undertake residential developments. These companies claim full input tax credits for GST incurred on construction, land and development costs. There are no sales involved during a project’s development phase so the credit claims prompt cash refunds from the ATO. However, when the project is then completed and new residential lots or premises are sold, the special purpose company does not remit the GST on the sales. According to the ATO, about 4,000 developers have been engaged in this activity in the last five years.
The ATO can implement recovery action against these special purpose companies but aside from the fact that such recovery action is time-consuming and costly, the chances of recovering the GST are reduced when all the sales processes have already been distributed out of them. Thus, this will be addressed by requiring buyers to pay the GST instead.
“New residential premises” is defined as premises which haven’t been sold previously as residential premises, have been developed through substantial building renovation or are a replacement to demolished premises on the same land. The amount payable is a proportion of the contract price.
Suppliers are required to give buyers accurate notice of their GST obligation as it constitutes as an offense if they fail to do so. For contracts which are entered into before July 1st, 2018 and supply consideration that is provided before July 1st, 2020, the new law is not applicable.
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