The announcement of the measure was unexpected and does give rise to a number of issues. The most pressing of these will be to seek Treasury guidance on any proposed transitional arrangements. For example, if a developer is entering a contract for an off-the-plan apartment today, for a sale that will complete after 1 July 2018, what does the contract need to say about GST?
The Budget Papers are light on detail but identify two policy drivers:
1. Failure to remit GST
Some developers are failing to remit the GST to the ATO, despite having claimed GST credits on their construction costs.
To the extent that there is a problem with businesses claiming input tax credits, and then failing to remit GST, this is not limited to the property industry. It is symptomatic of businesses struggling in any industry. In our experience, companies wound up at the request of the ATO often have outstanding GST liabilities.
The Budget Papers note that this measure is estimated to increase GST revenue by $660.0 million and associated payments to the States and Territories, net of administrative costs, by $1.6 billion over the forward estimates period. The difference is due to the timing of when GST is collected and recognised.
How will the new measures work?
While further details are yet to be released, based on the above the model can most practically be introduced by:
- Introducing a withholding mechanism – similar to the non-resident CGT withholding regime; or
- Making purchasers liable for the GST.
The first option is the more likely given the experience with the non-resident CGT withholding regime in the last 12 months and the historical difficulty of figuring out how to make consumers liable for GST in other contexts (like digital supplies).
There is presently no detail on the form of the amendments and Redchip will provide clients with a further update once Government’s consultation process has been completed.