Australia: Federal Budget 2017: Impact of proposal that purchasers pay GST on new residential premises and subdivisions

In brief - Property developers will be affected the most

The recent Federal Budget includes a Tax Integrity Package — improving the integrity of GST on property transactions, which is a proposal that purchasers rather than vendors will be required to remit GST directly to the Australian Taxation Office (ATO) as part of the settlement of newly constructed residential properties or new subdivisions. Given the nature of the property classes to which these measures are intended to apply, these measures will generally affect developers. It is proposed that this change will take effect from 1 July 2018. (See page 38 of Budget Paper No.2.)


Currently, it is the developer who has the obligation to remit the GST component of the sale of "new residential premises" to the ATO. The current practice reflects the ordinary position that the "supplier" of a GST taxable supply has the obligation to remit GST to the ATO. This new measure aims to treat most forms of "new residential premises" as a distinct and different type of GST supply from the ordinary position contained in the A New Tax System (Goods and Services Tax) Act 1999 (Cth).

The reason provided by the Federal Government for this proposed measure is the claim that some developers are failing to remit GST to the ATO from the sale of new residential premises despite having claimed GST credits on their construction costs. The Federal Budget estimates that this measure will increase GST revenue by $660 million, and associated payments to the states and territories, net of administrative costs, by $1.6 billion over the next four years. The Federal Government considers that the proposed measures will stop some developers avoiding obligations to remit GST to the ATO by setting up "phoenix" companies which go into liquidation prior to paying GST on completion of a project.


We expect that the proposal will make finance even harder for developers to obtain and that the conditions of construction drawdowns will become even more difficult to satisfy. The flow on effects of this issue are significant.

We anticipate that construction lenders will raise their pre-sale level requirements to take into account that the GST component of the off-the-plan sale prices will not be available to pay down the construction facilities at the time of completion, thus potentially delaying the time in which the construction facilities can be paid out. The effect of this is that lenders will re-allocate the risk to developers.

The obvious effect of the greater difficulty for a developer in achieving satisfactory pre-sale targets is that developers may need to hold their development sites for longer before they can commence construction, as more off-the-plan stock will need to be sold before a project can continue. These financing conditions may also stop construction projects ever taking place. In addition, in order to reach higher pre-sale targets, we expect that developers will be placed under higher pressure to increase pricing of their off-the-plan stock. This results in greater holding costs and finance costs for the developer. It also slows down the supply of new housing to the market and delays the engagement of builders, which may have further negative impacts for the economy and place further upward pressure on housing prices.

If the GST liability of the purchaser is non-final, we assume that the developer will be able to claw back the difference paid by the purchaser to the ATO after settlement if GST has been overpaid. However, it is unlikely that lenders will patiently wait for appropriations, which may take months. The delays in the payout of the loan facilities will result in greater costs to the developers, and put developers at further risk of triggering default events under their loan and security documents.


The Federal Budget paper states that as "most purchasers use conveyancing services to complete their purchase, they should experience minimal impact from these changes." Whilst the full impact on purchasers cannot be fully understood until the draft legislation is released, purchasers will likely find that settlements become more complex and legalistic, regardless of whether they use conveyancing services or are self-represented.

Even if it is accepted that, from a practical perspective, conveyancing transactions for newly constructed residential properties and new subdivisions will not be significantly disturbed, this does not mean that purchasers will not be affected in other ways. In particular, we expect that the impact on developers and lenders will reduce new housing supply and place upward pressures on prices at a time where there are serious and warranted concerns about housing affordability and availability.


If these measures are enacted, lenders will receive a reduced amount on settlement of newly constructed residential properties and new subdivisions, as the GST component of the sale prices will be removed from the proceeds of sale that would otherwise be available for collection by lenders. This increases risk for lenders.

We expect that lenders will look at strategies to counteract this risk and position by increasing pre-sale targets for developers and tightening other financing conditions. Lenders may also seek to price their construction loan products higher to account for the increased risk.


The Federal Government has one year to address these issues, given that the proposed commencement date is 1 July 2018. More information is urgently required regarding how this measure will impact contracts for newly constructed residential properties or new subdivisions where settlement will occur after 1 July 2018; and in relation to contracts exchanged prior to the Federal Budget announcement, which will settle after 1 July 2018. It is important to know which party bears the onus of remitting GST to the ATO for these contracts, which are often GST-inclusive.


Further detail on the implementation of this measure is required to resolve issues such as:

  • whether there will be any stamp duty implications at a state or territory level due to these proposed measures
  • if these proposed measures will apply to incentives offered by developers to purchasers
  • whether these proposed measures will impact "rental guarantee" payments
  • if these proposed measures will affect property development agreements, which usually contain complex payment arrangements, and
  • how the GST amounts that are to be remitted will be calculated, particularly where the margin scheme may apply


This proposal to counter deliberate strategies to avoid GST remittance responsibilities, may risk slowing supply, and increasing the cost of new housing in the market.

Brendan Maier Steven Spyros
Property acquisition, development and sale
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions