Ideas Tax Knowledge Blog

Topics on CGT and GST for property buyers (12)

Written by Ideas Group | Mar 5, 2021 4:36:29 AM

 

Preventing GST Evasion: Understanding Phoenixing

In the realm of property development, particularly in the residential sector, a concerning practice called "phoenixing" has been on the rise. This tactic allows businesses to evade their GST obligations, resulting in significant revenue loss for the government.

What is Phoenixing? Phoenixing occurs when a business intentionally dissolves before submitting its Business Activity Statement (BAS). By doing this, the business can pocket the full sale proceeds, typically received at settlement, without paying the owed GST to the ATO. While the business remains legally obligated to pay GST, the ATO often struggles to recover the debt since it ranks as an unsecured creditor.

Addressing the Issue: GST Withholding Rules To combat phoenixing, the government introduced GST withholding rules under Subdivision 14-E of Schedule 1. These rules target the sale of new residential premises and potential residential land, with some exceptions. They came into effect on July 1, 2018, with transitional arrangements for contracts signed before this date.

How It Works: When GST withholding applies to a transaction, the buyer is required to withhold:

  • 1/11 of the contract price (for supplies not made under the margin scheme).
  • 7% of the contract price (for supplies under the margin scheme).
  • 10% of the GST exclusive market value of the supply (for supplies between associates for consideration less than the GST inclusive market value).

Get Expert Advice: If you have questions or concerns about GST obligations or need assistance navigating these rules, reach out to Tax Ideas Accountants & Advisers at            +61 2 83181545, or book an appointment through our online calendar.