From 1 July 2017, the Federal Government has lowered the threshold for the payment of withholding tax by foreign residents for property sales of $2m and above to $750,000 and over and increased the withholding amount from 1o to 12.5%. The change affects all home owners selling property for $750,000 or more.
The official line is that the ATO wants to communicate strongly to foreign investors that if they want to buy property in Australia they will have to comply with Australian capital gains tax rules and ensure that this capital gains tax is paid before the sale proceeds are moved off-shore.
That said, by requiring ALL property sellers with a sale price of $750,000 or more to apply for a clearance certificate, the ATO can also use the process to check up on the completion of past tax returns by sellers (as was recently the case in NSW where the issue of a clearance certificate was delayed because an elderly seller hadn’t lodged a return for several years, thereby delaying settlement and incurring penalty interest) and also assumedly use it to address unresolved issues with the ATO or suspect transactions from an ATO perspective.
What sales are affected?
All property sales where the purchase price is $750,000 or greater.
What do I need to do?
If you are a seller (individual, trustee or company) you must apply to the ATO for a Clearance Certificate. Application is free and the certificate is valid for 12 months. Applications can be completed online or lodged in hard copy. A link to the ATO website with an explanation of the application process and link to apply can be found here.
The instructions say that you assist with prompt processing you’ll need to supply your Tax File Number (TFN) and companies also their ABN, but it can be completed without it. The ATO is authorised by the Taxation Administration Act 1953 to request the provision of tax file numbers (TFNs) but is not an offence not to provide the TFN (source: ATO). If you have changed names you may also need to supply additional documentation.
Whilst a Clearance Certificate for a resident should normally be issued within a few days, it may take weeks if there are outstanding taxation issues and the ATO determine manual processing is required.
The Clearance Certificate must be given to your settlement agent to be given to the buyers settlement agent prior to settlement.
What happens is a Clearance Certificate isn’t received by settlement?
The buyer, or their settlement agent, must withhold 12.5% of the purchase price of the property and pay that amount to the ATO at settlement.
Can settlement be delayed if the clearance certificate isn’t received?
A settlement date can be varied upon mutual agreement by the buyer and seller by completing a variation to the contract. Your real estate agent or settlement agent can help you do this.
Want to know more?
For more information visit the ATO website and search for foreign resident capital gains withholding tax.