New ATO legislation for all property sales over $750K officially rolls out from July 1, 2017.
The government is targeting foreign investors in real estate said to be avoiding capital gains tax and will allow “the ATO to capture more property transactions”. It is clear properties in high-density areas and particularly located along the East Coast of Australia will be drawn into the ATO’s crosshairs. Expectations of more than $600 million in revenue will be added to the ATO coffers across the next four years.
WHO IS IMPACTED THE MOST?
In a nutshell: The property seller
In more detail: New laws apply to all property transactions of $750,00 and over in Australia. Even though the new laws commence July 1, the ATO can collect 12.5% of all property sales over $750,000 from May 9, 2017 as tax.
This covers all property sales made by the individual, company, trusts and superannuation funds who are Australian residents or ‘foreign resident vendors’ – overseas investors.
A SUMMARY
The new laws involve applying for a ‘Foreign resident capital gains withholding clearance certificate’ – or Tax Clearance Certificate – from the ATO.
All responsibilities of applying for and presenting the Clearance Certificate lies with the seller.
If the Clearance Certificate isn’t presented at settlement, the buyer is legally obligated to deduct 12.5% from the sale price.
On the flip side, the buyer is expected to pay that amount as tax to the ATO.
As the law is aimed at sellers who in the government’swords, are ‘foreign persons’, there may be a genuine difficulty proving you are not a foreign investor – even if you are an Australian resident.
THE STEPS
• Clearance Certificate applications can be lodged online or in a paper form.
The Clearance Certificate starts from the entry date of Contract and stands for 12 months from date of issue. It applies to any properties sold by the seller in that period.
• Real Estate Agents looking after Contracts For Sale will need to include conditions setting out procedures for Withholding Payments, while covering Clearance Certificates, Variation Notices and Remittances.
• Before placing their property on the market, sellers will need to make sure their tax affairs are in order.
• If tax returns are lodged with no taxable problems, the ATO aims to issue a Tax Clearance Certificate within 48 hours. If there are any tax issues including overdue tax, a delay with queries by the ATO will be raised.
• Once a property seller enters into a Contract for Sale, they will need to apply for the Tax Clearance Certificate from the ATO.• The seller presents a Tax Clearance Certificate from the ATO to the buyer on settlement of sale.
• On the Clearance Certificate, the seller supplies a Tax File Number or Australian Business Number and answers three questions.
• Where there is more than one seller involved with the sale of a property, each seller must lodge a separate application.
THE COSTS TO FOREIGN INVESTORS
Unless the ATO approves a Variation, foreign vendors will pay the 12.5% in tax of the sales price to the ATO. This is in addition to the government increasing Foreign Investor Surcharges to 8% with land tax going up to 2%.
For more details, jump to the ATO webpage.
Tax Clearance Certificate Application available here
