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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 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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