The Treasury Law Amendment (2018 Measure No. 1) Bill 2018 was introduced into Parliament on 7 February 2018 and includes under Schedule 5 proposed changes to the Goods and Services Tax (GST) withholding regime on sales of new residential premises and potential residential land. These are as previously announced in last year’s Budget.
A summary of the proposed legislation based on the original Exposure Draft issued in November 2017 is covered in our Client Alert No. 49 – New GST Withholding and notification rules on property transactions.
The Bill confirms the commencement date of 1 July 2018 for contracts entered into on or after 1 July 2018. The new provisions will not apply to contracts entered into before 1 July 2018 where consideration other than the deposit is first provided before 1 July 2020.
As a result of feedback provided to Treasury, the current Bill before Parliament includes a number of beneficial changes as compared to the original Exposure Draft.
Key changes included in the Bill are summarised below:
- The withholding requirement is not applicable to purchasers of potential residential land that are registered for GST where the land has been acquired for a creditable purpose.
- New residential premises created through ‘substantial renovations’ are specifically excluded from the requirement to withhold. Also excluded are new residential premises that are regarded as ‘commercial residential premises’.
- Property transactions subject to the margin scheme are now subject to a 7 percent withholding rate.
- The withholding amount is calculated based on the stated contract price, and so does not take into account any settlement adjustments. If the contract does not specify a contract price, or if the supply is made between associates for less than the GST inclusive market value, the withholding amount is calculated based on the GST inclusive market value.
- The timing requirement for vendors to provide written notification to purchasers 14 days prior to settlement was removed in the Bill. The Bill does specify that written notification must be provided by the vendor prior to settlement but the failure to do this does not affect the purchaser’s obligation under the GST withholding regime.
- Purchasers will not be subject to a “failure to withhold” penalty where the purchaser gives the vendor a bank cheque made payable to the Commissioner for the withholding amount required to pay the Commissioner or if the purchaser has relied on a notification from the supplier and that reliance is reasonable.
- The Bill recognises that where there are multiple recipients of a sale, such as where a couple purchases a property as tenants in common, each recipient is treated as a separate recipient receiving separate supply in proportion to their interest in the property for the purposes of the withholding obligation.
The changes proposed by the current Bill does provide clarification surrounding this fundamental change to the way GST is accounted for on residential property transactions.
If the Bill passes through Parliament in its current form, the proposed effective date of 1 July 2018 provides very little time in which suppliers can ensure they are ready to implement the change. Therefore suppliers affected by the GST withholding regime should start considering the cashflow impact as well as administrative requirements surrounding the requirements to provide written notification and understand the administrative penalties applicable for failure to comply with the new GST withholding regime.
If you have any questions or require any assistance in relation to this matter, please contact your Blaze Acumen advisor.