Property developers warn GST changes beginning to bite 12 months early
Radical changes to the way developer taxes are collected are already beginning to bite off-the-plan developments and new subdivisions, despite not being introduced for another 12 months, industry leaders have warned.
Developers warn “uncertainty and confusion” are weakening confidence in a sector beset by impending loss of lucrative stamp duty exemptions for buyers in three states, rising funding costs and investor nervousness.
David Payes, managing director of Intrapac Projects, which has 15,000 lots under development in 17 projects across Australia, is warning about possible impact on developer cash flows, banking covenants, administrative costs and market sentiment.
“There are real issues,” Mr Payes said.
Massive red tape
Industry leaders are conferring with Treasury officials about the proposals intended to close loopholes that allowed “phoenixing”, which involves a developer going out of business before settling goods and service tax liabilities and quickly re-emerging under a different name.
It is estimated the move will increase revenue for the federal and state governments by $1.6 billion over the next four years.
The proposed changes will switch responsibility for remitting the 10 per cent tax from the builder to the buyer of residential properties or new subdivisions. Under current law GST is included in the purchase price and developer makes the payment to the Australian Taxation Office.
The new measures are believed to stop short of forcing property buyers registering for GST liability, which would impact hundreds-of-thousands of deals and massive red tape.
But other administrative issues that directly impact developers’ financing, contractual, banking and marketing issues are awaiting clarification.
Plenty of uncertainty
Ken Fehily, director of Fehily Advisory, a GST specialist who advised the Howard Government on the introduction of the tax, said it is already affecting deals with a 12-month development pipeline.
“What are the transition provisions. Will it apply to contracts signed after July 1, 2018, or will it apply to contracts already signed, or signed after budget night but before July 1, 2018?” he asked.
“Contracts are being entered into now, and financing arrangements are being put in place now, that might be affected by future legislation, and it is not even clear at this stage who will be liable to pay GST. Is it the purchaser or the developer with the purchaser merely ‘withholding’ GST on behalf of the developer?”
Treasury is also being quizzed about whether “new subdivisions” liable to the reforms applies to new, old, or partly developed subdivisions.
There is also uncertainty about whether it has to include a house, or can be bare land on which a house will, or eventually be built.
“Does it only apply to standard house lots, or will it apply to super lots, or large greenfields bought by developers to develop later, or in stages? What if the property is only partly residential, or will, or could be used for residential or commercial?” Mr Fehily said.
