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. Although the new laws are aimed at foreign residents, real estate agents must be aware that these new laws also impact Australian residents selling properties above this value.
Australian resident seller/s, if you are looking to sell your property and you consider its market value to be $750,000 or more then you should apply for a clearance certificate from the ATO as soon as practicable to avoid 12.5 per cent of the purchase price being withheld at settlement.
If you are unsure about the ultimate purchase price but there is some prospect that it may sell for $750,000 or above (for example, it is being sold at auction and the purchase price is unknown or it is being sold by expression of interest) you should apply for a clearance certificate from the ATO as soon as practicable to avoid 12.5 per cent of the purchase price being withheld at settlement
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 ato.gov.au/FRCGW (hyper link). 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 buyers’ solicitor 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 titles 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.
Will the REIQ amend its contracts?…Yes, all REIQ property sales contracts (residential and commercial) will be amended to include provisions which reflect the above new tax rules.
**sourced from the REIQ