Treasury Releases Draft Bill To Directly Collect GST On Property Transactions, Bypassing Phoenixing Developers

Wednesday 8 November 2017 @ 10.35 a.m. | Corporate & Regulatory | Legal Research

The Treasury has released a draft Bill that would require purchasers of new residential premises or new residential subdivisions to pay the GST on the purchase price directly to the Australian Taxation Office (the ATO) as part of the settlement process.  Under current law, GST is included in the purchase price and the developer is responsible for remitting it to the ATO.  The planned change was announced as part of the 2017-18 Budget in May 2017, with the Government claiming the move will strengthen compliance with the GST laws.

In a media release issued yesterday, Minister for Revenue and Financial Services Kelly O’Dwyer said:

“Currently, developers can have up to three months to remit GST after the sale of newly constructed residential premises and new subdivisions, allowing dishonest developers time to phoenix and avoid their GST obligations…

The measure will ensure the GST is paid over to the ATO…

This legislation adds to the comprehensive package of reforms to address phoenixing announced by the Government earlier in the year. It will clamp down on this type of tax evasion by unscrupulous businesses and level the playing field for developers who do the right thing.”

According to the draft explanatory materials, this phoenixing strategy is “one of the main forms of non-compliance”, with the ATO saying:

“In the ATO’s submission to the 2015 Senate Inquiry into ‘Insolvency in the Australian construction industry’, the ATO identified 3,355 individuals controlling over 13,000 entities engaged in this sort of activity in 2015-16. Over $2 billion in debt has been written off. These insolvent entities have also previously claimed $1.3 billion in GST credits between 2011 and 2015.”

The Draft Bill

The Draft Bill would insert a new Subdivision 14-E, “GST payable on taxable supplies of certain real property” into the Taxation Administration Act 1953, and amend the Income Tax Assessment Act 1997 and the A New Tax System (Goods and Services Tax) Act 1999.

The draft explanatory materials set out the key features of the draft Bill as follows:

  • Purchasers of new residential premises or new subdivisions of potential residential land must make a payment to the ATO of 1/11th of the price.
  • The entity that makes a taxable supply of new residential premises or a new subdivision of potential residential land must remit the GST to the ATO after lodging their Business Activity Statement, taking into account any credit available for the payment made by the purchasers (see below).
  • Suppliers of residential premises or potential residential land must provide an entity that receives the supply with a notification 14 days before making the supply.
  • An entity that makes a taxable supply of new residential premises or new subdivisions of potential residential land will be entitled to a credit for the amount of the payment made to the ATO.
  • Where a supply of new residential premises is made under the margin scheme, the supplier may apply to the ATO for a refund of a portion of the amount withheld by the purchaser.

According to the media release, while the draft Bill will be scheduled to commence on 1 July 2018:

“[t]o provide certainty for contracts that have already been entered into, the exposure draft bill provides a two-year transitional arrangement.  Contracts entered into before 1 July 2018 will not be affected as long as the transaction settles before 1 July 2020.

The measure will apply to contracts that settle on or after 1 July 2020 regardless of the date of contract.”

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