It’s coming up to nearly a year of the new GST withholding regime, yet property developers still seem to be getting caught out by the (not so) new regime. From 1 July 2018, purchasers of new residential land or potential residential land are required to withhold the GST component of the Purchase Price and remit it to the ATO.
New greenfield development sites often fall within the definition of potential residential land and therefore fall within the scope of the regime.
The withholding obligation arises at the time the first payment of any instalment is due (excluding the deposit). Often greenfield sites are acquired by property developments under what are purposefully instalment contracts or complex arrangements that ultimately end up being instalment contracts and this can have an effect on the financial position for property developers, the vendor and the timing for payment of the GST.
The whole of the GST component is due to be remitted on the payment of the first instalment, which can often be greater than the amount of the instalment. This will mean that the Seller is not receiving any money on the ‘payment’ of the first instalment as that amount is to be remitted entirely to the ATO by the Purchaser.
It is therefore important that when property developers are acquiring sites, or Vendor’s are selling to property developers, that the deal is structured appropriately so that the GST can be dealt with, without having a negative effect on either party to the transaction or at the very least, not being an unwelcome surprise on the payment of the first instalment.