‘Off-the-plan’ GST changes hurt mum and dad buyers and developers
If you’re thinking about buying off-the-plan, put a big fat red circle on your calendar around July 1 – because things are about to get a little bit complicated.
Property experts and the housing association are warning that looming federal government GST changes – set to raise billions of dollars – will make life harder for ordinary ‘mum and dad’ buyers and developers.
Revenue and financial services minister Kelly O’Dwyer says the moves are actually about “improving the integrity” of the tax system when it comes to off-the-plan property transactions.
It’s obvious that no one likes to pay tax, and that the government therefore works hard to close loopholes that make it easier to reduce those bills.
And this year, the government has zeroed in on a particular minimisation scheme that O’Dwyer says is constantly abused by “dishonest developers”.
What she’s talking about is calling illegal ‘phoenixing’.
It happens when one of these dodgy building developers sets up a company solely to collect GST from a property buyer – only to bankrupt and dissolve that company once all the GST has been spent anyway.
“This measure will ensure the GST is paid over to the ATO,” O’Dwyer said.
So from July, developers in the business of brand new houses and subdivisions will no longer have a helpful three months to pay GST to the tax office.
O’Dwyer said the big winners will be developers who have already been “doing the right thing”. But what she doesn’t explicitly say is that from July it will effectively be the buyer rather than the developer who needs to play tax-man and ensure that the GST bill is paid.
And not just that, the government wants its cash before the property even settles – which in reality means that bigger deposits will need to be put down by those same buyers.
Property experts are warning that this makes life a lot more difficult for ordinary off-the-plan buyers like mums and dads, and therefore applies pressure to the property market. The Housing Industry Association says it just adds “cost, red tape and further complexity” to the process of developing and buying every single new house, townhouse and apartment off the plan.
Read related: New Protections for Off-the-plan purchasers
How else do the GST changes make life harder for off-the-plan buyers and developers?
- Buyers could be put off buying off the plan
Although the actual price won’t necessarily change, buyers may think twice about going the off-the-plan route because the money that needs to be put down in the earliest phase will be significantly higher.
- Property developers could ask for even more
But developers may actually put up their prices as well, because they will no longer have that GST money in their bank accounts. Less cash flow for developers means they will have less power to fund the construction process.
- There’s more responsibility on buyers
The changes mean there’s a lot more responsibility on the shoulders of ordinary off-the-plan buyers, who are now being told to basically play ‘tax man’ role or face the hefty consequences.
- Buyers may need to seek legal advice
These added responsibilities may mean buyers will be best advised to seek professional legal advice about how and when that GST needs to be paid to the tax office.
- ‘Mum and dad’ developers hurt too
And it’s not just ordinary buyers who may be put off or impacted – there are plenty of ‘mum and dad developers’ in Australia as well. So while the big developers will be ok, it’s the small fry whose cash flow will be squeezed the most.
So if you’re a small fry off-the-plan developer or buyer, make sure you take a careful look at exactly what the changes really mean.