New tax rules for properties $750,000 and above
NEW TAX RULES FOR PROPERTIES $750,000 AND ABOVE
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.
The new laws require a purchaser to withhold 12.5 per cent of the purchase price of real property valued 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 are aimed at sellers who are a foreign person. However, it will impact all property transactions valued $750,000 and over, irrespective of whether the seller 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 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.
APPLY HERE: https://www.ato.gov.au/FRWT_Certificate.aspx
How can clients obtain a clearance certificate?
The ATO will only issue a clearance certificate to a seller that is not a foreign person for taxation purposes.
Any seller 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. The 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 per cent of the purchase price at settlement and the full sale proceeds are to be released to the seller.
How do Australian residents obtain a clearance certificate?
A seller who is an Australian resident can obtain a clearance certificate by making an application on https://www.ato.gov.au/FRWT_Certificate.aspx). If the seller 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 sellers must give the clearance certificate to the purchaser on or before settlement occurs to avoid the purchaser withholding 12.5 per cent of the purchase price.
What if the Seller is a foreign person?
Where the seller is a foreign person, the purchaser must retain 12.5 per cent of the purchase price and pay that to the ATO at settlement, unless the seller provides a valid Variation Notice in which case the purchaser must remit the amount stated in the notice.
When will the new laws apply?
The new laws will apply to sale contracts (for $750,000 and above) entered into on or after 1 July 2017.
What types of properties do these rules apply to?
All property including, vacant land, residential property, commercial property, strata title and community tiles schemes.
Foreign resident sellers If the purchase price is $750,000 or above and the seller is a foreign resident, you should advise them that 12.5 per cent of the purchase price will be withheld at settlement by the purchaser and provided to the ATO.
Where can I find more information?
You can find more information here:https://www.ato.gov.au/general/new-legislation/in-detail/direct-taxes/income-tax-on-capital-gains/foreign-resident-capital-gains-withholding-payments/
You can access the ATO Clearance certificate application for Australian residents here:https://www.ato.gov.au/FRWT_Certificate.aspxpx
DISCLAIMER: The information contained in this fact sheet is provided for general information purposes only by the REIQ. 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. Churchill Real Estate 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 Churchill Real Estate has taken all reasonable measures to ensure that the information contained in this fact sheet is correct, Churchill Real Estate gives no warranty and accepts no responsibility for the accuracy or the completeness of the information.