From 1 July 2018, the Federal Government will strengthen compliance with the Goods & Service Tax (GST) law by requiring purchasers of newly constructed residential properties or new subdivisions to remit the GST directly to the Australian Taxation Office (ATO) as part of settlement. Under the current law (where the GST is included in the purchase price and the developer remits the GST to the ATO), some developers are failing to remit the GST to the ATO despite having claimed GST credits on their construction costs.
The measure will require the purchaser of newly constructed residential properties of new subdivisions to remit the GST on the purchase price directly to the ATO as part of Settlement for contracts on or after July 1, 2018.
New GST withholding is expected to now occur at the Autumn sitting, between February 5th and 8th and will be passed within that sitting period by at the latest the end of March. Once introduced the Explanatory Memorandum will be available and the implementation phase will be underway.
The ATO has commenced preparation despite the delay in passing the law, and have started to draft forms along with the process required of conveyancers.
An example of the DRAFT online notification form can be viewed HERE
What you need to know
The process at this stage will entail:
1. Developer provides notification to the purchaser about the property sale, including the amount required to be paid to the ATO.
2. The purchaser (via their conveyancer) will complete and lodge two forms;
- Form 1: Contains details of the person filling out the form (Conveyancer), purchaser, developer, property details, withholding amount and expected settlement date.
- The ATO will then provide a Lodgement reference number (LRN) and a payment reference number (PRN) to the purchaser.
- An email will be send to the purchasers’ conveyancer and the developer of the details submitted in the form.
- Form 2: On day of settlement confirms the settlement date and amount to be paid.
3. The purchaser is required to withhold at 1/11th of the contract price or if the margin scheme applies then at the rate determined by the Minister and pay this amount to the ATO. In both instances the purchaser will pay the balance to the developer.
o An email will be send to the purchasers’ conveyancer and the developer when the payment is received by the ATO
4. Liability for the GST will remain with the developer.
5. The developer will lodge their BAS and include the correct amount of GST payment, taking into account the margin scheme if applicable.
6. The credit of GST on the developers account will apply to the BAS.
Determining Fee for Service
As with all aspects of quoting your “fee for service,” it is a requirement for you to disclose your fees upfront making every effort to ensure your client understands the various costs and how they may apply. Whether you are assisting with facilitating Capital Gains Tax (CGT) for foreign residents or the proposed GST withholding you can determine your fee based on recouping reasonable costs.