ATO changes to the way we buy and sell property

As of 1 July 2018, Purchasers of residential property will be required to withhold the GST payable on the supply of certain residential properties.

The changes are established by the Treasury Laws Amendment (2018 Measures No. 1) Act 2018 (Cth) which adds sections 14-250 to 14-255 to Schedule 1 of the Taxation Administration Act 1953 (Cth).

Broadly the legislation provides that the Purchaser will withhold any GST payable on the sale of residential land. The GST withheld by the Purchaser will be calculated on and deducted from the Purchase price specified in the Particulars of Sale; or if the property is transferred to an associate for less than market value, then the GST to be withheld will be calculated based on the market value of the property.

The legislation applies to the supply of all residential land* in so far as the Vendor will be required to issue notice to the Purchaser confirming whether GST is payable and if GST is payable, the amount payable, when it is payable and the Vendors name and ABN.

At the date of writing, the rates of GST payable will be either calculated at a rate of 7% if the margin scheme applies or 1/11th of the Contract Price (or Market Value if the property is being transferred to an associate for less than market value) in all other circumstances.

The notification provisions will apply to all contracts executed on or after 1 July 2018, and will also apply to Contracts entered prior to 1 July 2018 where settlement of the property is not completed before 1 July 2020.

Although the changes will have an effect on all sales of residential property*, the obligations can be largely dealt with at the time the Contract of Sale is drafted by including the relevant information within the Particulars of Sale and with the addition of relevant Special Conditions.

Of particular concern is the impact the legislation changes will have on developers whom have:

  1. ongoing developments with lots that have been sold that are not expected to be completed until after 1 July 2020;
  2. ongoing developments that have an end date for registration of the plan of subdivision in accordance with section 9AE of the Sale of Land Act 1962 (Vic) (a sunset date or registration date) after 1 July 2020; or
  3. purchased development sites based on feasibility studies which have not taken into account the withholding provisions,

as the changes will impact upon:

  1. the conditions precedent for development finance including pre-sales requirements and borrowing capacity;
  2. proposed sale prices;
  3. interest costs due to decreased revenue received at settlement and increased cash flow requirements; and
  4. the overall viability of the project.

Developers are encouraged to review their feasibility studies to ensure developments remain viable and to make adjustments where required.

At SLF Lawyers we have drafted Special Conditions in preparation for the 1 July 2018 changes and we will incorporate them into all Contracts of Sale that are intended to be executed after 1 July 2018.

If we can be of any assistance or if you have any queries in relation to how the changes will affect you please contact us.

*Other than residential property purchased for a ‘creditable purpose’ as defined by Sections 11.15 and 60.20 of the A New System (Goods and Services Tax) Act 1999 (Cth).

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