Fighting for subbies rights
GST on new housing: Changes put Tax Office first in line if developer fails
"The concern is that these [new procedures] may be detrimental to other creditors of the property developer, who will miss out where the property developer is in financial trouble and not be able to pay all its debts as the Commissioner now is first in line to get paid," said BDO GST tax partner Fady Abi Abdallah.Changes to the way GST must be paid on new housing from July 1 next year means the Australian Tax Office will rank above all other creditors should the developer run into financial trouble or fail, say tax advisors BDO.
New procedures announced in the federal budget require that GST on sales of newly constructed residential properties and subdivisions be paid by the end purchaser to the Australian Tax Office upon settlement.
This replaces the current procedure where the developers collect GST and then pay it to Australian Tax Office.Its being implemented to stop the hundreds of millions of tax dollars lost due to the "phoenixing activities" of crooked property developers who allow companies to slip into liquidation before paying GST obligations, having already claimed GST credits on construction costs. These companies than re-emerge, debt-free, under new names.
"If the Commissioner collects the GST directly from the purchasers there would be less available to share amongst the other creditors," he said.
In effect, it meant that the tax commissioner has priority over all creditors including secured creditors like banks and lenders.
"A number of clients have contacted us about these changes though they are more concerned the practical application of the new rules," he said.
Mr Abdallah said BDO and others was awaiting further details about how the new policy will be implemented. "No further guidance has been issued as yet from Treasury or the ATO," he said.
According to budget papers, "This new collection procedure is estimated to increase GST revenue by $660 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."
KPMG's Indirect Tax Partner Kate Law questioned the practicality and administrative cost of imposing GST on unregistered "mum and dad" purchasers.
She said it was a "significant divergence from the current system" and in the case where developers used the margin scheme to calculate the GST liability, the end purchaser was unlikely to be aware of the amount of GST included in the purchase price.
"This measure will therefore require developers to change the way they disclose the price to ensure the GST liability is disclosed as a separate line item."