From July 1st 2017, the changes announced in May’s Federal Budget in regard to withholding tax for foreign residents selling properties valued at $750,000 and above, come into effect. Previously, this only applied to properties $2 million and above; real estate agents and vendors selling properties above this $750K price range, need to be aware.
It covers all properties including: vacant land, residential, commercial, strata title and community title schemes.
What does it mean?
- All vendors selling property valued at $750,000 and above, must obtain a clearance certificate from the Australian Taxation Office (ATO). Failure to do so will result in a legal obligation by the purchaser to withhold 12.5% of the final sale price and forward to the ATO. Irrespective of whether the vendor is a foreign resident or not, the clearance certificate must be obtained.
- The ATO will only issue a clearance certificate to vendors who are not foreign residents for taxation purposes.
- The lowering of the threshold from $2 million to $750,000 will impact on thousands of property transactions across the nation. Agents will be needing to deal with this at point of listing, and for Auction properties that may fall into this category (depending on result), it is recommended that agents advise the vendor to obtain a clearance certificate to avoid the purchaser withholding 12.5% of the purchase price.
- Foreign resident vendors will now be paying 12.5% to the ATO, on any contract of sale above $750,000.
How long will it take to get a clearance certificate?
If the vendor is automatically assessed as an Australian resident, a clearance certificate will be issued within days of application; however, the process may take longer for more complex applications.
All REIQ property sales contracts will be amended to include provisions which reflect the new tax rules.