UPDATE - Withholding tax on property sales
Last year we wrote an article detailing the new withholding tax introduced for properties sold to foreign residents. For any property sold for more than $2 million after 1 July 2016, the purchaser had an obligation to withhold 10% of the sale price. If the vendor was an Australian resident they had to provide a “Clearance Certificate”, issued by the ATO, to the purchaser to prove their residency and stop the purchaser withholding 10% of the purchase price and remitting to the ATO.
As of 1 July these thresholds and amounts have changed. Purchasers now need to withhold 12.5% of all property sale prices over $750,000. Considering the average price of real estate in Australia at the moment, this is going to impact a significant number of property buyers and burden them with this additional administrative process.
Clearance certificates are specific to a particular entity and are valid for 12 months. To avoid settlement complications or delays the ATO are urging Vendors to obtain a clearance certificate when they first consider selling their property. The certificate is not linked to a particular asset and can apply to multiple transactions within that 12 months.
Where a Vendor is a foreign resident, they can apply to the ATO for a variation notice which may reduce the required withholding amount. A foreign resident should apply for a variation notice as early as possible as it can take up to 28 days for the variation decision to issue.
The purpose of a clearance certificate is to show the ATO there is no withholding obligation. The clearance certificate should be obtained by the registered owner that appears on the title.
Purchasers will face a penalty if they do not withhold what they should, and they may be liable for the 12.5% withholding tax if they cannot produce a Clearance Certificate. If you have any questions please talk to your Agent, Conveyancer or give us a call.
A link to the ATO Clearance Certificate can be found here: https://www.ato.gov.au/FRWT_Certificate.aspx
Rebecca Mackie, Partner, Paris Financial
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