The Australian government's strategy to address the so-called phoenixing amongst development companies will make it complicated for property hunters to buy off-the-plan.
In a report for the Domain News, experts warned of the implications the new rules might have for buyers.
Under the previous rules, when the goods and services tax (GST) is paid on a newly-built property, the developer has the responsibility to pay the Australia Tax Office (ATO) sometime after settlement.
However, this creates a loophole for developers: declare bankruptcy, be relieved of the obligation to pay the ATO.
The new rules transfer the responsibility to property buyers to ensure that the ATO gets paid, according to GlobalX chief executive Peter Maloney. Starting July this year, buyers have to make sure that the ATO is paid before the property settles.
"New home buyers and off-the-plan buyers are going to become tax collectors. You’re going to still pay theoretically the same amount but consumers should be cognisant of the extra payments attached to the deposit," Maloney noted.
Propertyology director Simon Pressley said this would discourage buyers from purchasing a property off-the-plan.
“It’ll give people an opportunity to pause and think, ‘is this what I want to do?’ There’d be a good percentage of people who would want to purchase new but they’d get turned off," he said.
There is also a possibility that developers might require more cash up front, as they may need extra money to fund the construction.
"Where it may get even trickier for buyers is because developers may be relying on that cash flow the deposits would bring. That would be millions they’d be missing out on," Pressley added.
For Maloney, buyers should absolutely seek legal advice for two reasons: to ensure GST is settled and to make sure their payment plans are sustainable.
"If you were buying an off-the-plan development, you need to get legal advice from a qualified conveyancer. If you do it on your own, you risk facing penalties from the ATO if you do not remit those funds," Maloney said.