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Tax rules for Properties over $750,000

From 1 July 2017, new tax rules will apply on any property transaction where the market value of the property is $750,000 and above. Currently $2,000,000.

Summary

The new laws require a purchaser to withhold 12.5 % of the purhase price of real property value at $750,000 or more and to pay that amount to the australian Taxation Office (ATO) on settlement unless the seller obtains a clearance certificate.

The new laws will start on 1 July 2017 and aimed at vendors who are 'foreign persons'. However, it will imact all property transactions valued $750,000 and over, irrespective of whether the vendor is a foreign person or not.

For any sale contract entered into on or after 1 July 2017 where the purchase price is $750,000 or greater, the purchaser has a statutory obligation to withhold 12.5 % of the purchase price at settlement from the vendor and pay that amount to the ATO. Following settlement, the vendor applies for a tax credit in relation to the amount withheld by the ATO for the capital gains liability arising from the transaction.

This means that Australian resident vendors who are selling property with a market value of $750,000 or above will need to apply for a clearance certificate from the ATO to ensure that their sale proceeds are not withheld.

How can your clients obtain a clearance certificate?

The ATO will only issue a clearance certificate to a vendor that is not a 'foreign person' for taxation purposes.

Any vendor that is not a foreign person can apply online for a clearance certificate from the ATO, and that certificate will remain valid for 12 months from the date of issue.  ther certificate may be used for multiple property sales within the 12 month period.

If a valid clearance certificate is provided to the purchaser prior to settlement, the purchaser is not entitled to withhold 12.5 % of the purchase price at settlement and the full sale proceeds are to be released to the vendor.

How do Australian residents obtain a clearance certificate?

 A vendor who is an Australian resident can obtain a clearance certificate by making an application on ato.gov.au/FRCGW

Where there are multiple Australian resident vendors disposing of the asset, each vendor should apply for a separate clearance certificate in their name only.

Australian residents not required to lodge tax returns, such as aged pensioners, are still required to obtain a clearance certificate.

If you can't access the webpage, phone us on 13 28 66 (Fast Key Code 4,2) within Australia or +61 2 6216 1111 outside Australia to obtain details of what you need to provide.

Where a valid clearance certificate is provided, the purchaser is not required to withhold an amount from the purchase price for the vendor listed in the clearance certificate. If the vendor fails to provide the clearance certificate by settlement,

the purchaser is required to withhold 10% of the purchase price.

If an Australian tax resident vendor has had withholding taken from their sale proceeds, for example because they didn't provide the purchaser with a clearance certificate, they will be able to claim a credit for that amount when they lodge their tax return. This credit may be refunded if they don't have to pay capital gains tax on the sale of the property (for example because it was their main residence).

Only an Australian resident entity* can obtain a clearance certificate. Solicitors, tax agents or other representatives of the vendor can apply on the vendor’s behalf.

Conveyancers, real estate agents and others charging a fee for services (but who are not legal practitioners or registered tax agents) should obtain a completed paper PDF version of the form from the vendor. They can then use the details on the paper form to complete the online form – this ensures faster processing – as part of the settlement process

 

If the vendor is automatically assessed as an Australian resident, a clearance certificate will be issued within days of the application however, the process may take longer for more complex applications.

When does the clearance certificate have to be given?

Australian resident vendors must give the clearance certificate to the purchaser on or before settlement occures to avoid the purchaser withholding 12.5% of the purchase price. 

What if I am a foreign person selling my house?

Where the vendor is a 'foreign person'. the purchaser must retain 12.5% of the purchase price and pay that to the ATO at settlement, unless the vendor procides a valid 'Variation Notice' in which case tge purchaser must remit the amount stated in the notice.

What types of properties do these rules apply to ?

All properties including, vacant land, residential property, commercial property, strata title and community title schemes.

REIQ and ATO