Local Vendors Caught in Foreign Tax Property Crackdown
From July 1, 2016, vendors of all Australian property (both residential and commercial) valued at more than $2 million will be required to obtain a clearance certificate from the Australian Tax
Office (ATO) confirming they are Australian residents prior to selling. Without this certificate, which can take up to a month to procure, vendors will face a 10 per cent withholding tax. In other words, buyers must deduct 10 per cent from the purchase price to be paid to the ATO unless the seller has a tax clearance.
The new legislation, designed to clamp down on foreign property investors who sell Australian properties
without paying capital gains tax, could lead to lengthy delays in property settlements.
In the majority of cases, Australian resident vendors should have no problem obtaining the certificate. However, there are risks for local investors who are not fully up to date with their tax returns. In addition, if the vendor owes a tax debt, the application for a ‘clearance certificate’ may trigger a situation where the ATO will seek to recover some or all of that debt from the purchaser by way of a garnishee notice.
In some cases, the ATO could potentially take action prior to the sale of a property
to freeze the transaction.
If you are planning to sell or purchase a property with a $2 million plus price tag after July 1, ensure you are fully familiarised with the new legislation, which comes into effect under the Tax and Superannuation Laws Amendment Bill 2015, and seek advice from your accountant, conveyancer and commercial real estate
agent to ensure you are fully aware of all implications.