In recent years, the government has reportedly written off $1.6 Billion in lost funds from the practice of ‘Phoenixing.’
Phoenixing is a practice where a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts.
This becomes relevant to residential property when GST is payable by developers to the Australian Taxation Office (ATO) on the sale of new premises. There have been many instances where the GST is paid by a buyer to the developer on an eligible property, only for the developer entity to be liquidated, and only some or often none of the GST subsequently passed on to the ATO.
The new GST Withholding Tax regime seeks to regulate this practice by ensuring that GST is paid directly to the ATO upon settlement of new residential property. This means that the responsibility is passed onto the buyer of the property to ensure that GST gets paid properly and fully to the ATO.
Whilst the regime may cause inconvenience, for both new buyers and otherwise compliant developers, the new measures are aimed at levelling out the playing field, and eliminating a means by which nefarious businesses can garner additional income unlawfully.
Which properties does the new legislation cover?
The laws are designed to cover properties which are ‘new’ meaning, primarily, that they are new developments. This captures not only new units, townhouses or apartment developments in established areas, but also includes properties in newly established suburbs. In the ACT this will include our newest suburbs of Whitlam and Throsby.
How will this impact you as a buyer?
If you exchanged contracts prior to 1 July 2018 and you settle before 1 July 2020, you won’t be impacted, GST will simply be dealt with as it always has – taken by the developer to be subsequently remitted to the ATO. If you have exchanged contracts prior to 1 July 2018 but are not going to settle prior to 1 July 2020, then it will be up to you to withhold a GST amount at settlement, to be paid directly to the ATO.
As for contract exchanges that take place after 1 July 2018, the legislation will have full effect. This means that it will be your responsibility as the buyer to withhold GST, and pay it directly to the ATO.
Purchasing property, particularly new and off-the-plan developments, can be complicated at the best of times. However, it can also provide distinct advantages for those looking to get into the property market.
If you are looking for assistance with this process, including guidance on how the new GST measures may impact you, please get in contact with Anthony Simpson on (02) 6140 3263 or send us an email at [email protected].