Tax & Accounting Blog

Property developers face another GST issue

Blog, Indirect Tax, Tax August 22, 2017

GST compliance in the property industry has presented many challenges over the years, and issues are still coming up on a regular basis.

In the latest saga, the purchasers of new residential units in a Canberra development have commenced a class action to recover the GST they paid to the developer on their purchases. Thomson Reuters Weekly Tax Bulletin (Issue 35 – 18 August 2017) has reported that the class action alleges that the property developer obtained a private ruling from the ATO stating that the units were input taxed (ie presumably classified as residential for GST purposes) rather than taxable (ie instead of qualifying as new residential premises for GST purposes).

If these allegations are ultimately proved in Court, the case will represent yet another example of ongoing problems involving property developers and GST. Concerns about this industry were reflected in the 2017-18 Federal Budget that purchasers of newly constructed residential properties (or new subdivisions) will be required to remit the GST directly to the Tax Office as part of settlement.

Currently, GST is included in the purchase price and it is the developer who remits any GST. The Budget papers stated that some developers are failing to remit the GST (despite having claimed GST credits on their construction costs).

The Budget Papers also stated that, as most purchasers use conveyancing services to complete their purchase, they should experience minimal impact from these changes. No mention, however, is made of the additional administrative cost to the conveyancers or indeed the purchasers.

The measure is proposed to start on 1 July 2018. There have been no further public developments on this since the 2017-18 Budget announcement and no draft legislation released as at 21 August 2017.

Interestingly, the stated net impact of this proposed measure is significant. The change is estimated to increase GST revenue by $660 million and associated payments to the States and Territories, net of administrative costs, by $1.6 billion (yes, billion) over the forward estimates period (which is 4 years). The difference is stated to be due to the timing of when GST is collected and recognised.

Get the latest GST insights with Thomson Reuters Australian GST Handbook 2017-18 – current to 1 July 2017. Order your copy here. To find out more, visit the Thomson Reuters website or contact Customer Support on 1800 074 333.

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