Phoenixing crackdown brings changes to GST on new property developments
Buyers purchasing from a property
developer will be required to pay GST direct to the ATO from July 1 this year
under sweeping changes designed to reign in a tax dodge known as Phoenixing.
Phoenixing refers to a less-than-honest
practice whereby company directors liquidate a company and declare insolvency
before their financial obligations are met, only to start up a new company
under a new name a short time later. These unmet financial obligations include
non-payment of wages, employee entitlements, suppliers, contractors and taxes
One of the key measures being implemented
on July 1 is the introduction of a Directors Identification Number (DIN) – a
unique identifier which will allow authorities to track company directors and
their relationship to other directors and companies. This will give the ATO the
capability to potentially block, or at least reduce, Phoenixing activity.
The change most relevant to the property
sector involves the way GST is collected on behalf of the ATO. As of July 1
those purchasing a property will be required to pay the GST component of the
purchase price directly to the ATO instead of paying it to the developer.
Buyers also have the option to issue the property developer a bank
cheque drawn to the ATO on settlement.
This will ensure the ATO gets their
slice of the property pie, however it also makes Phoenixing a less lucrative
practice for dishonest property developers.
By law property developers will also
have to give written notification to buyers informing them of their obligation
to withhold the GST amount on settlement.
Contracts entered into on or after
1 July 2018 will be subject to these changes, however they only apply to
new property developments, including new highrise units. Sales of existing
residential properties will not be affected.
For more information on how these changes could affect you contact the team at PRDnationwide Burleigh Heads on 07 5535 4544 or drop us a line at firstname.lastname@example.org.