In a bid to assist in the collection of foreign residents’ Australian tax liabilities, from 1st July, 2016 the Australian Tax Office will direct ALL purchasers of certain types of property to withhold 10% of the purchase price and pay it directly to the ATO.
In summary any property sold worth over $2 millon will be deemed as an overseas investment unless the vendor applies for a clearance certificate. To avoid this tax implemented by the ATO, all Australian residents and Australian resident entities’ are required to provide the purchaser with a clearance certificate prior to settlement. A clearance certificate is valid for 12 months from the date of issue and may be used for multiple transactions. Each vendor of the property has to provide their own clearance certificate to ensure no money is withheld.
A vendor may not be the only one to loose out, if you are a purchaser who does not receive a certificate and does not withhold the 10% of the purchase price, you will be liable for that amount payable to the tax department. It will surely also have attached penalties and interest as well.
The following asset types are captured by the legislation:
- Taxable Australian real property with a market value* of $2 million or more
- Vacant land, buildings, residential and commercial property
- Mining, quarrying or prospecting rights where the material is situated in Australia
- Lease premiums paid for the grant of a lease over real property in Australia
- Indirect Australian real property interest in Australian entities whose majority of assets consist of the above asset types
- Options or rights to acquire any of the above asset types
*In many cases, the market value of a property will be the purchase price. Where the purchase price has been negotiated between the vendor and the purchaser, acting at arm’s length, the ATO will accept the purchase price as a proxy for market value.
In most cases a certificate will be easily available to obtain. It will either be issued automatically or in the case where there are data irregularities or exceptions the certificate could take 14 to 28 days to be manually processed.
There may be issues if you have not filed a tax return for many years, or have a tax debt. The tax office may see the sale of the asset as a way to recoup that debt. This new tax may affect the increasing number of home owners who get together with their neighbours, to sell their property as a development site. This may be seen as a profit making scheme and may be seen as a capital gain.
It is almost certain that vendors will be caught short with these new rules. If you want certainty and are thinking of selling or leasing your property, contact the agents with over 25 years knowledge and experience in real property.