GST Withholding On Residential Property

The Government has introduced a Bill aimed at strengthening GST payments in the property industry as part of the 2017/18 Federal Budget.

Under the new laws, buyers are required to withhold the GST on the contract price of new residential properties and new residential subdivisions and pay the GST directly to the ATO as part of the settlement on the property.

The Government is hoping that the new changes will prevent tax evasion by dishonest property developers that fail to pay the GST on the sale of these properties.  In most cases, these developers have claimed GST credits on the building costs.

The non-payment of GST is often connected with ‘phoenixing’ – where a developer winds up their business and sets up a new business to avoid paying the GST to the ATO.

The new law has a 2-year transitional arrangement so that existing contracts have some certainty.  Contracts signed before 1 July 2018 will not be affected by this change as long as the transaction settles before 1 July 2020.

Source: Minister for Revenue and Financial Services’ media release, 7 February 2018.