Proposed legislation changes will put added pressures on lawyers and conveyancers, who will be required to take on the role of tax collector during the property settlement process.

From July 1 next year, Australians buying property – regardless of the cost – will be forced to pay the GST on their purchase price directly to the tax office as part of the settlement process, in an effort to reduce instances of “phoenixing”.

According to GlobalX CEO Peter Maloney (pictured), this will mean more red tape for buyers who must ensure the right checks are in place, as well on the legal professionals conducting the settlement.

“The settlement process can be a stressful time for many buyers and these changes will add further, unnecessary pressures that will only benefit the ATO,” Mr Maloney said.

“Instead of adding more red tape, we should be seeking ways to reduce the already cumbersome process consumers face when buying and transacting property.”

The measure, which was announced in the 2017 Budget, will put the onus on purchasers of new homes to withhold 1/11th of the purchase price and pay this directly to the ATO.

“What this will also mean is that, at least 14 days before the transaction occurs, developers must notify buyers of their requirement to withhold that amount,” Mr Maloney said.

“And, if they failed to advise buyers before that deadline, the ATO has said developers would face penalties.

“These changes are the ATO’s attempt to reduce instances of ‘phoenixing’ – where property developers go into liquidation before paying the GST on the sale of new homes over to the ATO – but one-size-fits-all legislative reforms are inappropriate because they penalise the majority for the actions of a minority.”

Gadens Partner Matthew Raven said the changes would see buyers needing to withhold the GST amount, even where a contract required the full purchase price to be paid to the seller at settlement.

“Unlike the Foreign Residents Capital Gains Withholding regime, which was introduced earlier this year, there is no ability for developers to obtain an ATO clearance, meaning all sales will be affected once the change is enacted,” Mr Raven said.

“While phoenixing is estimated to cost the Australian economy more than $3 billion a year, this proposed solution essentially sees lawyers, conveyancers and purchasers taking on the role of tax collector.

“We expect this announcement – once it is more widely understood – will ruffle a few feathers within the legal sector of those trying to streamline the settlement process rather than complicate it further.”