A federal government plan to plug a multibillion-dollar revenue hole will make life harder for off-the-plan buyers and mum and dad developers, property experts have warned.
When GST (1/11th of the purchase price) is paid on a newly built property, it’s the developer’s responsibility to pay the Australia Tax Office some time after settlement.
This leaves a loophole for unscrupulous developers to unnecessarily wind up a company and declare bankruptcy, freeing them of their obligation to pay the ATO the taxes it’s due.
It’s nicknamed “phoenixing” and it’s thought to cheat Australian taxpayers of $3 billion each year.
The plan to tackle “phoenixing”? From July 1, it’ll be the buyer’s responsibility to ensure the ATO gets paid.
“New home buyers and off-the-plan buyers are going to become tax collectors,” GlobalX chief executive Peter Maloney said.
And the kicker is, it has to be paid before the property settles.
“You’re going to still pay theoretically the same amount but consumers should be cognisant of the extra payments attached to the deposit,” Mr. Maloney said.
Propertyology‘s Simon Pressley said the need for buyers to stump up extra cash early in the purchasing process could scare off keen buyers.
“It’ll give people an opportunity to pause and think is this what I want to do?” he said. “There’d be a good percentage of people who would want to purchase new but they’d get turned off.”
There was also the potential for developers to ask for more cash upfront, because they may need payment plans to fund construction.
“Where it may get even more tricky for buyers is because developers may be relying on that cash flow the deposits would bring,” Mr. Pressley said. “That would be millions they’d be missing out on.”
Mr. Maloney said buyers needed to be aware of the requirement, which he believed heightened the need for legal advice before entering into a sale for two reasons; to ensure the GST gets paid and to ensure they’re entering into a suitable payment plan.
“If you were buying an off-the-plan development, you need to get legal advice from a qualified conveyancer,” Mr. Maloney said. “If you do it on your own, you risk facing penalties from the ATO if you do not remit those funds.”
The change will present a challenge to Australia’s broad development industry too, Mr. Maloney warned.
“Australia has two distinct markets, large-scale property developers like Stocklands and Mirvac and we don’t think there will be too much change from those guys,” he said. “Outside of that Australia has thousands of smaller developers. They can be mums and dads working on just one development at a time.
“That cottage industry is going to have to be very prudent with how they manage their cash flow.”
Article originally appeared on Domain.com.au