ATO changes rules for property sales over $750,000

Written 16 June 2017

A major change was announced in the Federal Budget last month to the withholding-tax rules for foreign residents. However, the new tax rule affects all vendors selling property valued at $750,000 or above.

New withholding tax rules

From 1 July 2017, the withholding tax rules that were introduced last July for properties $2 million and above, will now apply to all property transactions where the market value of the property is $750,000 and above. 

All vendors selling property valued at $750,000 or above must obtain a clearance certificate from the ATO. If they don’t obtain that clearance certificate, the new laws require a purchaser (or their solicitor) to withhold 12.5% of the final sales price and pay that amount to the Australian Taxation Office (ATO) on settlement.

Following settlement, the vendor applies for a tax credit in relation to the amount withheld by the ATO for the capital gains liability arising from the transaction.

The new laws will start on 1 July 2017 and are aimed at vendors that are ‘foreign persons’. However, these laws will impact all property transactions valued $750,000 and over, irrespective of whether the vendor is a foreign person or not.

 
This means that Australian resident vendors who are selling property with a market value of $750,000 or above will need to apply for a clearance certificate from the ATO to ensure that their sale proceeds are not withheld. 

How can you obtain a clearance certificate?

The ATO will only issue a clearance certificate to a vendor that is not a ‘foreign person’ for taxation purposes. 

Any vendor that is not a foreign person can apply online for a clearance certificate from the ATO which remains valid for 12 months from the date of issue. The certificate may be used for multiple property sales within the 12 month period.  

  
If a valid clearance certificate is provided to the purchaser prior to settlement, the purchaser is not entitled to withhold 12.5% of the purchase price at settlement and the full sale proceeds are to be released to the vendor.

How do Australian residents obtain a clearance certificate?

A vendor who is an Australian resident can obtain a clearance certificate by making an application to the ATO.

  
If the vendor 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 vendors must give the clearance certificate to the purchaser on or before settlement occurs to avoid the purchaser withholding 12.5% of the purchase price.

What types of properties do these rules apply?

All property including, vacant land, residential property, commercial property, strata title and community tiles schemes. 

For more information speak to your agent or refer to the ATO website

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