Treasury has released an Exposure Draft aimed at implementing the 2017/18 Budget measures to introduce a GST withholding regime. Here are 10 questions outlining what you need to know:

  1. What is the draft legislation? Treasury Laws Amendment (2017 Measures No. 9) Bill 2017.
  2. If passed in its current form, when is it intended to come into effect? 1 July 2018.
  3. What will the legislation do? Require purchasers of new residential premises or new residential subdivisions to withhold the GST component of the contract and remit it directly to the ATO.
  4. What is the purpose of the legislation? Some property developers were collecting GST from purchasers but not remitting it to the ATO – this legislation by-passes the property developer insofar as the GST component of the relevant contract so as to prevent such practices.
  5. How much will purchasers have to withhold? A full 1/11th of the GST-inclusive purchase price (even if the margin scheme applies such that the actual GST liability is much less).
  6. When must a purchaser withhold? Generally before or at settlement.
  7. What are the vendor’s obligations? Vendors must provide purchasers with a ‘GST Withholding Notice’ outlining:
    • whether the purchaser is required to make a GST withholding payment;
    • if so:
      • the vendor’s name and ABN;
      • the amount of GST payable to the ATO;
      • when the GST amount must be paid;
      • if consideration consists of something other than money – its GST-inclusive market value.
  8. Are there penalties for non-compliance? Yes, vendors may be subject to penalties of 100 penalty units ($21,000) for failing to provide a ‘GST Withholding Notice’ and purchasers face penalties of 10 penalty units ($2,100) for failing to withhold.
  9. How do developers get overpaid GST back? This is most likely to occur where the margin scheme applies such that the actual GST liability is less than the full 1/11th of the GST-inclusive value withheld. Developers can:
    • wait until the end of the relevant BAS period and lodge in the ordinary course; or
    • to avoid the potential negative cash flow implications – apply for a refund (although this is not available for monthly lodgers), which is effectively providing the ATO with detailed margin scheme calculations for review prior to the release of the overpayment.
  10. What can developers do to prepare for the anticipated changes? Development projects often have long lead times and therefore, the impact of the proposed changes may already impact on forecast cash flows and financing arrangements. These issues should be reviewed with a view to determining the impact of the anticipated changes and the various scenarios available, such as electing monthly BAS periods or having detailed margin scheme calculations prepared as early as possible to facilitate the refund of overpayments as soon as possible.

If you or your clients need any assistance on the possible impact of these changes, get in touch.

Director – Taxation Advisory Services

James Meli

P. (02) 9266 2209