New tax rules for properties above $750,000
From July 1st, new ATO rules impacting every vendor and agent selling property priced above $750,000 came into force. Although the new tax rules are broadly aimed at foreign residents, real estate agents must also be aware that these new rules also impact Australian residents selling properties above this value
Under the new ATO rules, the purchaser is required to withhold 12.5% of the purchase price of any property valued at $750,000 and above, and to pay that amount to the ATO unless the seller proves they are not a foreign resident. The proof required comes in the form of a clearance certificate. According to the Real Estate Institute of Queensland;
“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 per cent of the purchase price at settlement from the seller and pay that amount to the ATO. Following settlement, the seller 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 sellers 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. ”
According to Domain research this new ATO rule is likely to affect around 60% of the property market Australia wide, and could be even higher when viewing isolated market segments. While the potential impacts are huge in terms of increased legal fees and compliance costs for vendors, it’s the change in where responsibility lies which is the big issue.
The onus is now on the seller to prove they are not a foreign person. This significant change in where the burden of responsibility lies mean that in essence, all sellers are considered ‘foreign’ until proven otherwise. The changes have been expected to add $600million in revenue over the Government’s forward estimates.
The Clearance Certificate
If the seller is an Australian resident for tax purposes, a clearance certificate is required to be given to the purchaser on or before settlement occurs. If a valid clearance certificate is provided before settlement to the purchaser, no amount should be withheld and the full sale proceeds are to be released to the seller.
According to the ATO guidelines, if the seller is automatically assessed as an Australian resident, the certificate will be issued within days of the application being submitted. Once issued, the certificate will remain valid for 12 months from the date of issue, and may be used for multiple property sales within the 12 month period.
When the seller is a foreign person, the purchaser is required to retain 12.5% of the purchase price and pay that amount to the ATO at settlement. If the seller, who in this case is a foreign person, provides a valid ‘Variation Notice’ – the purchaser must then remit the amount stated in the notice.
DISCLAIMER: The information contained in this article is provided for general information purposes only. The information should not be used or relied on as a substitute for legal advice. If you require legal advice concerning a specific fact or situation, you should seek independent legal advice. MetroCity Realty accepts no liability or responsibility for any loss occurring as a result of anyone acting or refraining from acting on the basis of the information contained herein. Whilst MetroCity Realty has taken all reasonable measures to ensure that the information contained in this fact sheet is correct, MetroCity Realty gives no warranty and accepts no responsibility for the accuracy or the completeness of the information.