Last month, the government introduced legislation to implement the purchaser GST withholding regime for new residential premises.
The Treasury Laws Amendment (2018 Measures No. 1) Bill 2018, if passed in its current state, will see purchasers of new residential premises or subdivisions of potential residential land making a payment to the ATO of part of the price.
The law allows for a two-year transitional arrangement, meaning contracts entered into before 1 July 2018 will not be affected by this change as long as the transaction settles before 1 July 2020.
According to Minister for Revenue and Financial Services Kelly O’Dwyer, the measure is aimed at “unscrupulous” property developers who fail to remit GST to the ATO despite claiming GST credits on construction costs.
Currently, purchasers of such properties pay the GST as part of the purchase price to the developers, who in turn are required to remit the GST to the ATO through their next business activity statement.
“As the payment to the ATO can occur up to three months after collecting the GST, some developers exploit this time lag by 'phoenixing'—they dissolve their business and set up new entities to avoid remitting the GST to the ATO,” said Ms O’Dwyer.
Thomson Reuters tax consultant Terry Hayes said tax practitioners needed to be up-to-date with the new legislation as the 1 July 2018 date of implementation nears.
“I was talking to some practitioners and there are still some concerns around the administrative side of how it's going to be implemented, whether that will surface when debate kicks off in the Senate in the next few weeks will be very interesting to see,” said Mr Hayes.
“A lot of tax practitioners will need to watch that bill very closely to see if anything gets tweaked or not in the Senate.”
Mr Hayes believes that while the measure is well intended, its impact on ordinary Australians will be wide reaching.
“It's certainly a major change — tax payers will basically be the tax collectors for the residential GST and residential premises,” said Mr Hayes.
“The aim is understandable trying to attack these phoenix operators who end up not paying GST when they should but one wonders if this is not another 'sledgehammer to crack a nut type' of exercise.
“No doubt it's likely to achieve what they are basically after but the tax payers and the citizens will have to come to grips with it through talking to their lawyers or their accountants about when they have to pay GST.”