Leading real estate law firms have warned the government’s latest GST proposal could see hundreds of millions of dollars in extra stamp duty paid around the country.
Jones Lang LaSalle and Corrs Chambers Westgarth released a statement claiming the government proposal to replace GST going concern exemption with a reverse charge mechanism has the potential to result in a 10% increase in stamp duty.
If the proposal is implemented, the supply of tenanted commercial premises will ordinarily be subject to GST unless the sale satisfies the going concern criteria and the parties agree that the reverse charge mechanism is to apply. Where the reverse charge mechanism applies, the GST liability shifts from the vendor to the purchaser.
Whether GST applies to the vendor or the purchaser should not affect the cash flows, assuming the purchaser can claim an input tax credit for any GST in the same period that it incurs the GST liability. However, it has the potential to increase the stamp duty payable if the purchaser pays the GST to the vendor, or the agreement to the reverse charge mechanism is seen as forming part of the "consideration" for the supply of the property
On a sale of a tenanted commercial property in Victoria worth $30 million, the stamp duty payable in this scenario will increase from $1,650,000 to $1,815,000, or by 10%, said Jones Lang LaSalle director sales and investments James Kaufman.
"If you look at the bigger picture, the potential increase will have an impact on property valuation. Increased acquisition costs will lead to lower property values and subsequently the Federal Government will collect less in capital gains tax in the longer term,” says Kaufman.
Corrs Chambers Westgarth partner, Nathaniel Popelianski says the concept that stamp duty was calculated based on the GST-inclusive price of real estate was heavily criticised as constituting a 'tax on a tax' and an unreasonable 'tax on business' when GST was introduced
“This burden is particularly heavy on sectors such as real estate where stamp duty of around 5.5% is payable on each sale transaction,” says Poplianski.
“The proposed changes expand this concept to sales of a going concern and impose an additional financial burden on the real estate industry. This has a flow on effect on rental prices, business overheads and the competitiveness of Australian business."