Selling a Property? New tax rules for property sales over $750,000
On 1 July 2016 any Australian resident selling real property with a market value of $2 million or more needed to obtain a clearance certificate from the ATO, to confirm a 10 per cent withholding amount did not need to be withheld from the transaction. The new rules were introduced to ensure foreign residents were meeting their capital gains tax liabilities.
From the 1 July 2017 new rules now apply for foreign investors looking to sell any taxable property within Australia. New rules for foreign resident capital gains withholding (FRCGW) now apply to sellers disposing of certain taxable property under contracts entered into from 1 July 2017 where the contract price is $750,000 and above. The FRCGW withholding tax rate has also been increased to 12.5% (previously 10%).
Purchasers must now withhold 12.5% of the purchase price and pay it to the ATO unless the seller provides the purchaser with an ATO-issued clearance certificate to ensure the amounts are not withheld from their sale proceeds.
The obligation to withhold only arises if the seller is a relevant foreign resident for the purposes of this new rule. Unless an exception applies, the seller is a relevant foreign resident if any of the following apply:
- The purchaser knows the seller is a foreign resident;
- The purchaser reasonably believes the seller is a foreign resident;
- The purchaser does not reasonably believe the seller is an Australian resident; and either
- Has a record about the acquisition indicating that the seller has an address outside Australia;
- Is authorised by the seller to provide a related financial benefit (for example, make a payment) to a place outside Australia (whether to the seller or to anyone else)
- The capital gains tax (CGT) asset to which the transaction relates is:
- Taxable Australian real property;
- An indirect Australian real property interest, the holding of which causes a company title interest to arise.
A seller is not a relevant foreign resident if they provide the purchaser with:
- A valid clearance certificate in transactions involving taxable Australia real property or indirect Australian real property company title interests; or
- A valid seller declaration in transactions involving other assets covered by the foreign resident capital gains withholding law.
How to apply for a clearance certificate
To apply for a variation, the seller or seller’s creditor needs to complete the online clearance certificate application for Australia residents form. To access the form, visit ato.gov.au/FRCGW.
If the seller hasn’t lodged a clearance certificate online, a legal practitioner or registered tax agent can complete the form on behalf of the seller. If you are currently selling and do not hold a current clearance certificate, please contact the team at Carroll Fairon Solicitors on (07) 3343 9522 to start the application process today.
How long will it take to obtain a clearance certificate?
In the majority of cases a clearance certificate will be issued within 28 days. This means that for most 30 day contracts you will need to apply for a clearance, if required, immediately upon signing the contract.
Certificates will be sent by email if an email address is provided in the application. Otherwise certificates will be mailed to the seller and the applicant using the addresses provided in the application. The clearance certificate (or variation notice) should be shown to the purchaser before settlement to ensure, if applicable, the reduced withholding rate applies.
Please contact the Commercial and Property law team at Carroll Fairon Solicitors if you require any further information regarding the new Foreign Resident Capital Gains Withholding rules or if you require any assistance on applying for a clearance certificate.