Buyers and Sellers of certain new residential property or residential land will need to be aware of recent changes to the collection of GST affecting contracts entered into on or after 1 July 2018.

An end to ‘phoenixing’ for developers – changes to GST for new residential property

The Status Quo

Currently, GST on the sale of certain new residential property or residential land is charged under the contract and absorbed by the Seller (Developer). Following settlement, the GST amount is then included in the Developer’s BAS and the net amount of any tax remitted by the Developer to the ATO.

However, according to the ATO, Developers are increasingly engaging in phoenixing whereby the Selling entity is dissolved so as to avoid the payment of any GST. The incoming changes are intended to minimise this practice.

The Changes

Under the Treasury Laws Amendment (2018 Measures No. 1) Act (Cth), Purchasers will be required to withhold the amount of GST from the contract price and directly remit that amount to the ATO on or before settlement.

All Suppliers/Vendors of residential premises or potential residential land (by way of sale or long term lease) must provide purchasers written notification if GST withholding applies and must also include details as to the amount of GST to be withheld and when the Purchaser is required to pay this amount. A new section headed ‘RW Payment (residential withholding payment)’ has been inserted in the Contract for the Sale and Purchase of Land 2018 Edition to aid Vendors in satisfying these requirements.

Who is affected?

All relevant contracts that were entered into on or after 1 July 2018 under the 2018 edition of the Contract for the Sale and Purchase of Land will be affected. Contracts entered into before 1 July 2018 will be excluded, provided that settlement occurs before 1 July 2020.