GST on new property transactions to be collected by purchasers: Kate Law

GUEST OBSERVER

The last two Budgets have contained tax integrity measures to impose GST on foreign entities who provide digital supplies and services (referred to as the ‘Netflix tax’) and low value goods to Australian consumers.

On Budget night, the Economics Legislation Committee announced its recommendation that the 2016 Budget initiative to impose GST on low value imported goods be delayed 12 months to 1 July 2018.

This Budget continues the theme of tax integrity measures by requiring that, from 1 July 2018, purchasers of new residential premises remit the GST amount directly to the ATO as part of the settlement process.

This announcement comes as a surprise and is a significant divergence from the way the GST system currently operates whereby purchasers pay the GST amount to the supplier as part of the total purchase price and the supplier is required to remit the GST to the ATO.

KPMG recalls that around 4 years ago, ATO compliance programs targeted illegal phoenix activity purportedly from a number of property developers who repeatedly placed companies in liquidation with outstanding GST obligations, despite having claimed input tax credits on construction costs.

However, KPMG is not aware of recent industry consultation on the issue of developers failing to remit GST on sales of newly constructed residential properties.

In the absence of such consultation, we question the practicality and administrative cost of imposing GST on unregistered ‘mum and dad’ purchasers.

Where developers use the margin scheme to calculate the GST liability, the purchaser is 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 of newly constructed residential properties to ensure the GST liability is disclosed as a separate line item to enable the purchaser to remit the appropriate amount of GST.

Those involved in the settlement process (e.g. financiers, lawyers and conveyancers) will also need to be mindful of their obligations in terms of ensuring that purchasers meet their obligations.

What is not clear from the Budget papers is what penalties or avenues of recourse are available for the ATO in the scenario that a purchaser fails to meet its obligation to remit the GST amount to the ATO (whether inadvertently or deliberately).

The Budget papers state that this measure 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 (4 years to 2020-21).

However, the Budget papers state that the difference is due to the timing of when GST is collected and recognised.

This suggests that it is not a permanent GST difference, which is seemingly at odds with the government’s statement that some developers are failing to remit the GST to the ATO.

In another integrity measure, legislation will be introduced to give effect to previously announced changes to combat GST fraud in the precious metals industry.

Similar to the integrity measures in relation to the sale of new residential properties, these changes require a buyer of gold, silver and platinum to remit the GST to the ATO instead of the seller.

Changes are also made to clarify that gold, silver and platinum are not second-hand goods, to ensure that GST registered entities do not incorrectly claim input tax credits when acquiring gold, silver or platinum, regardless of its form.

These changes to the GST law are said to target criminal activity and not genuine participants in the second-hand jewellery and collectibles market.

This measure is estimated to have an unquantifiable gain to GST tax revenue as it ensures the GST payable is collected as intended and does not affect the amount of GST payable.

In a welcome measure that follows significant consultation and discussion with industry groups, the government will align the GST treatment of digital currency (such as Bitcoin) with money from 1 July 2017 to ensure it is no longer subject to GST.

This will eliminate double taxation in circumstances where GST applied to the purchase and trade of the digital currency.

This measure is estimated to have a small but unquantifiable decrease in GST collections and is said by the government to remove an obstacle for the Financial Technology (Fintech) sector to grow in Australia.

Kate Law is a KPMG Indirect tax partner and can be contacted here.