30 Jun 2017

Compulsory ATO certificate required from 1 July to prove sellers are not foreign investors

From tomorrow, homeowners will be required to obtain a clearance certificate before they sell on property sales of $750k or more to prove they are not a foreign investor.

Changes announced in this year’s Federal Budget to the foreign resident capital gains tax lowered the property threshold but increased the withholding rate to 12.5 per cent on $750k plus properties.

It’s important to note that these changes present increased risks and potentially impact on sellers, buyers and advisors.

Under the changed law vendors of real estate with a value of $750,000 or more are now required to obtain a residency clearance certificate from the Australian Taxation Office (ATO) to avoid a compulsory 12.5 per cent withholding tax from the sale price.

Failure to withhold results in a 12.5 per cent liability on the purchaser at settlement if a valid clearance certificate is not held by them at that time. On a minimum sale price of $750,000 that amounts to $93,750 payable to the ATO.

Under the changes, all Australian sellers are deemed foreign investors by the ATO until proven otherwise.

The national property withholding tax was originally introduced on 1 July last year and was initially imposed on real estate valued at $2 million or more.

The primary purpose of the tax is to ensure foreign residents pay capital gains tax on Australian property transactions.

Sellers are encouraged to apply for a clearance certificate as soon as they think of selling as the lodgement process can take anywhere from three days to six weeks.

As a buyer, the onus is on you to make sure a residency clearance certificate has been provided by the vendor on settlement.