Existing legislation assists with the collection of tax liabilities for foreign residents, and imposes an obligation on the Buyer to retain 12.5% of the Purchase Price at settlement and pay it to ATO.
New rules pertaining to Foreign Resident Capital Gains withholding have come into effect and relate to Foreign and Australian residents disposing of certain taxable property under Contracts entered into from 1 July 2017, and apply to real property disposals where the Purchase Price is $750,000.00 or more.
This legislation applies to the following assets:
- Taxable Australian real property with a market value of $750,000.00 or more;
- Vacant land, buildings, residential and commercial property;
- Mining, quarry or prospecting rights where the material is situated in Australia;
- A Lease over real property;
- Indirect Australian real property interests in Australian entities (whose majority of assets consist of the above asset types);
- Options or rights to acquire any of the above asset types.
What effect does this have on selling property?
If you are selling a property, and anticipate a sale price of $750,000.00 or over, this legislation applies to you.
Australian resident Vendors are now required to obtain a Clearance Certificate prior to settlement to prove that they are not a foreign resident. If a Clearance Certificate is not obtained, the Buyer is required to withhold 12.5% of the Purchase Price at settlement.
The new legislation applies to taxable Australian property with a market value of $750,000.00 or more, including vacant land, buildings, residential and commercial property.
It is important to note:
- An entity may apply for a Clearance Certificate at any time when considering disposing of taxable Australian property
- All parties listed on a Certificate of Title are required to complete individual applications
- Australian residents not required to complete Income Tax Returns are still required to obtain a Clearance Certificate
- An application for a Clearance Certificate can take up to 14 days to be processed
- The Clearance Certificate is valid for 12 months from the date of issue
- The Clearance Certificate must be provided to the Purchaser prior to settlement
- If a an Australian resident Vendor is disposing of multiple properties in one transaction, which combined sale value exceeds $750,000.00, a Clearance Certificate is not required to be obtained as the withholding is only calculated on the market value of a property being disposed of that meets or exceeds the threshold; not the combined amount.
- If an Australian resident fails to provide a valid Clearance Certificate to the Buyer as required, 12.5% of the Purchase Price must be retained by the Buyer at settlement and paid to the Commissioner of Taxation on the day that the Buyer becomes the legal owner of the property. In these circumstances, the Australian resident Vendor may then claim a credit for the amount retained when lodging their following tax return.
How Do I Apply for a Clearance Certificate?
Only an Australian resident Vendor can obtain a Clearance Certificate. Solicitors, Tax Agents or other representatives are able to submit an application on the Vendor’s behalf.
Conveyancers and real estate agents are also able to apply online, however they should have the Vendor complete a paper form of the Application prior to lodging online.
Whether buying or selling, we are committed to ensuring that all of your obligations are met. Contact us today for further advice.