ATO Introduces New Rules for Prestige Property Owners
Changes that have long been talked about are coming into force on 1 July 2016 that are designed to prevent foreign investors from avoiding their obligations to pay capital gains tax to the Australian Taxation Office (ATO). If you sell a property for more than $2million, then from 1 July 2016 you need to comply with the new Australian Government requirements to ensure that 10% of the market value of the property is not withheld.
Put simply the requirements are as follows:
- Where a contract is signed on or after Friday 1 July 2016; and
- The purchase price (or market value) of the property is more than $ 2 Million,
Then if the Seller is a:
- Foreign resident then the Buyer must retain 10% and pay it to the ATO; or
- Australian resident then the seller must, before settlement obtain a clearance certificate from the ATO and provide it to the Buyer to show that they Buyer does not have to retain 10% of the purchase price.
While there is no positive obligation on real estate agents to take any steps it is important that you are aware of these requirements to assist clients (whether buyers or sellers) to make sure that they comply with the requirements. These changes will come as a surprise to a number of people in the industry who are not aware that they are activeand there will be penalties for Buyers who do not comply.
The procedure to obtain a clearance certificate will be fairly straight forward. The ATO has introduced a form that is currently available in PDF but will soon be replaced with an online form. This form is used to prove to the ATO that the Seller of the property is an Australian resident. The Seller is then granted a clearance certificate so long as the ATO is satisfied that they are an Australian resident.
Before placing a property on the market a Seller can apply for a clearance certificate that will remain active for up to 12 months. In our view it is good practice for Sellers to start applying for these certificates when they place properties on the market. The reason for this is that as with obtaining any document from a government department the timing of the provision of these certificates could impact settlement times for Buyers and Sellers of properties. Therefore the sooner a seller obtains the certificate the sooner that a property will be able to settle. For example if you have a buyer who wants to settle within 14 to 21 days then you will need to ensure that the seller already has a clearance certificate to be able to settle.
The ATO has announced that the online forms will be available from 27 June 2016 (next Monday) so if you have any potential sellers concerned about the implications of these requirements then they can start applying online from that date (anyone who may be concerned now can also lodge a pdf form).
At Streten Masons Lawyers our goal is to keep agents up to date with changes to the law that may affect their business. We see this as an important change to be aware of to ensure that there are no delays with settlement or that sellers are not caught out unaware of these provisions. If you or any of your clients have questions about these changes please contact Jeremy Streten on 07 3667 8966 or Jeremy@smslaw.com.au