A GADENS Lawyers partner is lobbying to have the law changed so that new home buyers are not burdened with further costs under a new GST law that can result in a “double dipping” by the Australian Taxation Office (ATO).
Steve Healy, property partner at Gadens Lawyers, said the price of new homes could increase by up to $20,000 as GST payable to property developers increases. Changes to the GST law applying from 17 March this year will see the ATO double-dipping where there has been a margin method sale since 1 July 2000.
He said two key problems with the GST law, which has increased development costs, were likely not intended and should be changed. “I am confident that the Government will move promptly to address these problems as a result of our lobbying,” he said.
Healy said the firm hopes to have prompt answers to the matter, which daily impacts transactions that occur within the firm’s property practice.
On the sale of a new home or residence, GST is payable, Healy said. Home buyers and investors cannot claim an input tax credit for the GST paid, and so any GST cost is added to the purchase price. In order to minimise this cost, home builders use the margin scheme under which GST is calculated on the difference between the price the developer paid for the land and the sale price. The margin method can reduce GST by up to 50 per cent, Healy said.
“Gadens has identified two problems related to this issue. The first problem arises because of the new law, and the second problem will intensify with the passage of time,” he said.
The first problem relates to this change in law, applying from March this year. “This new law results in double-dipping by the ATO where there has been a margin method sale since 1 July 2000. The passage of time being forced to go back to 1 July 2000 is totally inappropriate. Rather, the margin method should be calculated on the difference between the last margin method sale and the developer’s sale price,” said Healy.
As well, there is a problem relating to tracing the history of a block of land, said Healy. “Generally, the margin method can only be used if the property has always previously been dealt with under the margin method,” he said. “At Gadens we have found it comparatively easy to look at all sales of a property back to 1 July 2000, but with the passage of time this is becoming more difficult. Often the information will not be available to verify that the margin method has always been used,” he said.
When the developer is unable to verify the use of the margin method, according to Healy, they will need to use the ordinary method to apply, resulting in higher prices for home buyers. Gadens said in a statement that it is calling for the law to be changed so developers can rely on the vendor using the margin method, “rather than an audit being required of all previous transactions”.
“We hope to have answers reasonably promptly on both these matters as they impact transactions which occur every day within our large property practice,” Healy said.