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New Withholding Rules for Property Sales
New rules apply from 1 July 2016 to prevent foreign residents avoiding tax when they sell Australian property. However, the new rules will affect everyone (both residents and non-residents) buying or selling property with a market value of $2 million or more.
From 1 July 2016 Australian residents selling real property with a market value of $2 million or more will need to apply for a clearance certificate from the Australian Taxation Office (ATO) to ensure amounts are not withheld from the sale proceeds.
If a valid clearance certificate is not provided by settlement, the purchaser must withhold 10% of the purchase price and pay this to the ATO.
The new rules apply to sales of all real property from 1 July 2016 – this includes residential property, commercial property, vacant land and indirect interests (i.e. shares, units) in real property.
Importantly, the new legislation assumes a seller is a non-resident unless they are in possession of the clearance certificate from the ATO.
If you’re selling property
If you are selling property likely to have a market value of $2 million or more, you must apply for a clearance certificate from the ATO or the purchaser of your property must assume you are a foreign resident and withhold 10% of the sale proceeds. Certificates are valid for 12 months.
Where an amount is withheld from sale proceeds, the only mechanism for claiming a credit is upon lodgement of an income tax return, which may severely impact your cash flow for some time.
If you’re buying property
If you are buying property with a market value of $2 million or more, you need to ensure you receive the clearance certificate from the seller before settlement occurs. If not, the new legislation requires you to withhold 10% of the purchase price at settlement.
Importantly for purchasers – if the sale proceeds and you don’t have a valid clearance certificate and have not withheld the tax, you the purchaser are liable for the tax.
How do you apply for a clearance certificate?
To obtain a clearance certificate vendors must complete the online Clearance certificate application for Australian residents form. This form will be available at www.ato.gov.au/FRCGW from 27 June 2016.
For settlements occurring in the first weeks of July 2016, a PDF version of the form is available. (Download the clearance certificate here)
Where you own the property with someone else, each owner noted on the title must make a separate application (the ATO will not accept joint applications).
If you would like further information regarding the new rule please contact us.
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