Purchasing a home should be one of life’s most exciting experiences with many likening it to getting married, starting a family – or – launching a new business. However, the experience has been somewhat tainted by the government’s move to shift the onus of paying GST onto the purchaser of a new residential premises.
House prices are already absurd and the complexities involved in the purchase process are already enough to swallow, so why then has the government decided to add another hoop for buyers to jump through?
Currently, GST is included in the purchase price of a new residential property and it is the developer who pays any GST. However, it has been reported that some developers are failing to pay GST. This behaviour has been linked to illegal phoenixing activity, which is hot on the radar for the government at the moment. This activity is costing the economy billions of dollars, hence their latest move to reconfigure how the payment of GST on new property is collected and paid.
The nuts and bolts:
- The measures will apply to sales of ‘new residential premises’, which refers to properties that provide shelter and contain basic living facilities. This captures houses, units and flats, however it does not include vacant land.
- Purchasers must pay GST directly to the ATO during settlement. The majority of buyers use conveyancing services to complete their purchases. The government seems to hope that people will not notice much change.
- The change is estimated to increase GST revenue by $660 million.
- The proposed change is due to commence on 1 July 2018, with certain transitional provisions.
What are the ramifications for my small business?
Although the nature of this article is about the personal implications of GST property payments, property transactions involve large sums of money and they also attract a level of risk. GST compliance in the property industry has presented many challenges over the years, and problems are still popping up on a regular basis. The changes discussed above act as a reminder of the need for small business owners to have conversations around any changes involving GST, taxation and finances.
It is important to understand the changes and the possible impact on your small business in terms of cash flow, ability to raise funds, equity financing etc. We recommend you take full advantage of Thomson Reuters’ FREE trial to their Checkpoint platform. You will have access to a range of tax related content including the Australian GST Handbook. Checkpoint also offers tools and tips to support you and your business.
As a small business owner you have a lot to offer, a lot to learn and a lot to lose – it doesn’t matter if you’re a start-up through to wind up. Checkpoint will help you on the way.