New GST provisions for residential property
The biggest change to GST collection on property sales since the tax was introduced could affect up to 70,000 property transactions each year. And it kicks in next week.
From 1 July, buyers must remit the goods and services tax (GST) on the purchase of new residential property directly to the Australian Tax Office. Previously, GST was remitted by the vendor.
This means that buyers who settle after 1 July must make two payments: one to the seller, and one to the ATO for the GST amount.
The change relates to new residential property or subdivision of potential residential land.
The new measure was introduced in the 2017 federal budget to crack down on ‘phoenix activity’ – where companies strip the assets and cash from a business before liquidating and restarting it under a different name.
Kelly O’Dwyer, minister for revenue and financial services, says the changes will “prevent tax evasion by unscrupulous property developers that fail to remit the GST on sales of new residential premises and new subdivisions, despite having claimed GST credits on construction costs”.
The Australian Government estimates the new remittance arrangement will collect $6 million in GST revenue over just four years.
Property Council chief Ken Morrison says this is one of the biggest changes to the GST since it was introduced almost two decades ago.
“People buying property after 1 July should talk to their solicitor to ensure they have the right arrangements in place to meet this new requirement and ensure a smooth settlement process,” Morrison advises.
Transitional arrangements apply to contracts entered into before 1 July 2018 and which settle before 1 July 2020.
Morrison says Property Council members have invested in systems and staff training to support the introduction of the new process and to minimise disruption to customers.
“We’ll closely monitor the implementation of the change and continue to consult with the government on issues that may arise during the transition,” Morrison adds.
The changes to GST payment is the most significant of several federal and state property-related changes that come into effect on 1 July.
Among other national measures, Australians aged 65 and over will be able to inject $300,000 from the sale of their family home into superannuation.
In Queensland, the additional foreign acquirer duty increases from three to seven per cent. This will more than double the stamp duty cost for acquisitions by foreign investors. Aggregated land holdings with an unimproved value above $10 million will be subjected to a 25 per cent increase in tax. And a new $70 per tonne waste disposal levy also comes into force. Learn more about how tax changes will influence Queensland’s property industry.
Local infrastructure levy caps will increase in some areas of New South Wales, and e-conveyancing will replace many paper and manual transactions.In South Australia, stamp duty on commercial property will be abolished, after a phase out period over the last three years. Off-the-plan stamp duty concessions also end.
Meanwhile, in the ACT, rates are rising as the Barr Government phases out stamp duty. Rates for detached homes will increase by seven per cent on average, while unit owners face a 10 per cent rise. The government will also dump stamp duty for commercial transactions for properties worth under $1.5 million. And foreign owners of land in the ACT will pay an additional annual land tax surcharge of 0.75 per cent on their residential properties.
Morrison says governments are increasingly looking to property taxes to support state budgets. In the last financial year, property taxes hit a record $52.5 billion – up six per cent on the previous year and up a massive 56 per cent in five years. This is before company taxes and GST collections are included.