The Government is proposing to introduce a system under which purchasers of ‘new residential property’ will have to withhold 1/11th of the purchase price and remit it to the Commissioner on account of the Vendor, who retains the liability to pay the tax. The proposed start date is for supplies on or after 1 July 2018. Consultation on this measure was completed on 6 November 2017 (see also related Tax Month article).
The draft Bill was not, however, finalised and introduced into Parliament prior to Christmas (much less passed before Christmas). Further, there is no mention of extending the start date, which could leave the industry having only a few months to digest the change, to all their practices, if there is no extension.
This lead to the Tax Institute’s Senior Tax Counsel: Bob Deutsch to call for a deferral of the start date for this measure – at least until 1 October 2018 (using the 7 month period after legislating the CGT withholding arrangements, as a guide). This was in the Tax Institute’s weekly ‘Tax Vine’ publication (No. 1 – 19 Jan 2018).
Mr Deutsch noted the following, as a short list of matters that need to be dealt with, prior to the start date:
- Conveyancing lawyers in particular will need to make appropriate changes to standard sale contracts to reflect the requirements of the new regime;
- Parties involved in the settlement of property sale transactions will need to fully understand and implement the changes to cater for the new settlement process – this would include conveyancing lawyers, financiers, other legal advisers, and others involved in settlement procedures;
- Vendors will need to modify their accounting systems to cater for the changes;
- The ATO will need to roll out an education program to ensure that vendors, consumers, and intermediaries, such as conveyancers, are aware of their responsibilities under the new regime;
- The ATO will need to implement and test its own system changes before the commencement date;
- The transitional provisions will need to be carefully examined to ensure that they do not unfairly prejudice existing contractual arrangements. In this context, vendors with long term contracts and development agreements in particular will need to assess how the measures impact upon them;
- Assessments of how the new measures will affect the cash flow positions, in particular vendors, will need to be made and steps taken to ensure that the negative cash flow impact of the measures have been properly accommodated in relation in particular to the circumstances of the vendors and their relationship with their financial backers.
It is unrealistic to expect taxpayer’s to start this process of getting ready, on the back of just an exposure draft of legislation, much less, finalised legislation, with a definite start date.
I join the call for a deferral of the start date.
23 January 2018
[Vine, 1 – 2019; FJM; Tax Month January 2017]
Study questions (*answers below)
- Is the proposal to have purchasers of ‘new residential premises’ withhold from the purchase price and forward to the ATO on account of the vendor’s GST?
- Is the sale of all residential premises subject to GST?
- Did the draft bill propose a 1 October 2018 start date?
- Has the draft bill been finalised and introduced to Parliament?
- Will this affect conveyancers?