Property Sellers to take a hit as ATO collect GST at Settlement
The Federal Government announced in the 2017/2018 Budget measures that require the purchaser of new residential premises or subdivisions to remit the GST component of the purchase price directly to the Australian Taxation Office (ATO).
The new measures, designed to combat the illegal activity of phoenixing of companies - where companies are stripped of assets and liquidated, then restarted under a different name leaving creditors (i.e. ATO) out of pocket, are proposed to apply from 1 July 2018.
The measures are likely to have significant cash flow impact on reputable property developers who have a track record of tax compliance. The pressure on cashflow, banking covenants and pre-sale requirements mean additional financing and increased costs, which may not be able to be passed on to buyers in the short term.
The budget announcement was followed by Exposure Draft Legislation for comment (Treasury Laws Amendment (2017 Measures No. 9) Bill 2017). With comment having been provided by most professional tax bodies as well as the Urban Development Institute and Property Council, the measures attracted a number of criticisms.
We await the final legislation, which is proposed to apply from 1 July 2018, and we hope the final legislation will address the criticisms and allow for transitional provisions for existing contracts.
We will keep you informed about the progress of these significant measures.
If you have any questions or would like support in forecasting the cashflow impact on your business please contact your usual Hanrick Curran advisor or alternatively Stephen Brake on 07 3218 3900
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.