Builders, GST and Sales Contracts

From 1 July 2018 there’s been major changes to the way the ATO collect GST from the sale of new homes. If you’re a home builder who constructs and sells new homes, then these changes will have an impact on how much of the sale proceeds you’ll actually receive on settlement.

Under the new legislation the purchaser of a new dwelling must withhold and pay the ATO either:

–  1/11 of the contract price

–  7% of the contract price (for margin scheme supplies) or

–  10% of the GST exclusive market value of the supply (for transactions between related parties)

The seller is required to notify the purchaser if they have an obligation to withhold GST on the sale. The seller must advise the purchaser the amount they must withhold, when they have to pay it and other information.

When the seller lodges their next Business Activity Statement (BAS), the amount withheld by the purchaser (and paid to the ATO), will be taken into consideration when determining what additional GST (if any) will be payable for the month/quarter.

As can be imagined, the withholding of GST on the sale can be a cash flow burden for some residential builders. Therefore, it is essential to ensure (especially when external finance is being used) that any cash shortage from the settlement is managed appropriately. This may involve changing from quarterly to monthly GST reporting and/or staggering settlement dates for multiple sales.

These new measures are directed towards property suppliers who sell property for a price that includes GST but who avoid remitting the GST by winding up their business before they need to pay GST from the sale of property.

If you need any further information on the above, please contact our office.


Author: Kim Jay