From 1 July 2018, purchasers of new residential premises and new subdivisions of residential land will be required to remit GST on the purchase price to the ATO directly on or prior to settlement.
This will replace the current GST on a quarterly or monthly basis in their Business Activity Statements, which can be months after the settlement date. This new arrangement is expected to assist in reducing the delays or failure in remitting the GST on sales for some property developers.
The Bill containing the legislation dealing with the withholding of GST by purchasers in property transactions was introduced on 7 February 2018. There is no change to the commencement date for the new regime, which remains 1 July 2018. The Bill contains a number of important changes from the Exposure Draft.
Cash flow impacts
The new legislation, will result in the supplier receiving the consideration for the property net of an amount representing the GST. Therefore, a supplier, such as a property developer, will not receive the full consideration as they do currently, because an amount representing an estimate of the GST will have been withheld by the purchaser to be paid directly to the ATO.
Under the current rules, the property developer would have had the use of this additional cash at least until some or all of it were paid to the ATO on the next BAS. This new legislation could have significant practical implications for the cash flow of property developers, as well as a knock-on effect for them in meeting bank covenants in respect of their cash reserves.