Proposed changes to the payment of GST on newly constructed residential properties and subdivisions

Tuesday, 06 June 2017

The Federal Government has proposed a significant change to the usual process of paying GST in new property sales in the Budget released on Tuesday, 9 May.

Starting 1 July 2018, the government will require the purchasers of 'newly constructed residential properties or new subdivisions' to make payment of the GST component of their sale price directly to the Australian Taxation Office (ATO).

Key Points

  • Major shift in liability to Buyers to pay the Seller's GST - starts 1 July 2018.
  • Applies to 'newly constructed residential properties or new subdivisions'.
  • Likely to impact developers applying the margin scheme.
  • May have an affect on the project cash-flows for developers and financiers of residential property.
  • The ATO will now have priority over secured financiers for the payment of GST.

Key Issues

Before the proposed starting date of 1 July 2018, there are several questions to consider:

  • What happens where the developer is using the margin scheme? How can a buyer be assured that the margin scheme applies?
  • What does this mean for builders and the treatment of GST credits applied by developers under construction contracts?
  • How will standard 'off the plan' sale contracts deal with the administration of this new rule?
  • In marginal projects, secured financier's will no longer have the option of retaining all sale proceeds (incl GST) as only sale proceeds net of GST will be able to be applied to the secured financier.

Further details of how this new GST process for 'newly constructed residential properties or new subdivisions' (including how these new properties will be defined) are yet to be released. We expect that there will be a consultation process before the draft legislation is released ahead of 1 July 2018.

We will provide further updates on these changes as they come into effect. For further information on this article and how these proposed changes may impact your operations, please contact a member of our team.

HWL Ebsworth offers a national team of experts in Property Finance, Construction and Infrastructure and Taxation Law. For further information on our national expertise, please click here.

This article was written by Mark Lightfoot, Partner and Tim Sexton, Solicitor.

Partner | Brisbane
P +61 7 3169 4764

For further information, please contact a member of our Banking and Financial Services Team.

Important disclaimer: The material contained in this publication is of a general nature only and is based on the law as at 6 June 2017. It is not, nor is intended to be, legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.