Broadly, where a foreign resident disposes of certain taxable Australian property, the purchaser is required to withhold an amount from the purchase price and pay that amount to the Australian Taxation Office (ATO). This withholding legislation was introduced to assist the ATO in the collection of foreign residents' Australian tax liabilities.
For contracts entered into on or after 1 July 2017, purchasers of Australian property with market values greater than $750,000 will have to withhold and remit 12.5% of the purchase price to the ATO unless the vendor has provided a clearance certificate to confirm their Australian residency. For contracts entered into before July 2017, the threshold was $2 million and the withholding rate 10%.
Australian resident vendors can avoid the 12.5% withholding by providing an ATO Clearance Certificate to the purchaser prior to settlement. Foreign resident vendors may apply to the ATO for a variation of the withholding rate and provide a variation notice to the purchaser.
These provisions apply to:
- Taxable Australian real property with a market value of $750,000 or more including vacant land, buildings, residential and commercial property;
- Interest in Australian entities whose majority assets consist of the assets listed above;
- Mining, quarrying or prospecting rights;
- Options or rights to acquire the assets listed above
If you need to apply for a clearance certificate, please contact your accountant at Brentnalls SA and we can arrange this for you. Please note that the ATO will process applications for clearance certificates in the order in which they receive them, so to avoid any possible delays in the settlement of your property please contact us at least 14 days before you require the certificate.
Vendors may apply for clearance certificates at any time they are considering the disposal of a property. However, the certificates are only valid for 12 months and the certificate must be valid on settlement day.
All parties on the Certificate of Title will require a clearance certificate. For example, joint tenants / tenants in common will need to fill out multiple forms.
The payment of the withheld tax is due on or before the day of settlement together with lodgement of associated forms. Payment can be made via EFT, BPAY, in person at Australia Post or via cheque. If payment is not received in time by the ATO, they will impose a general interest charge (GIC) which will accrue from the date of settlement .
Foreign resident vendors must lodge a tax return at the end of the financial year, declaring their Australian assessable income, including any capital gain from the disposal of the asset. The vendor will then be able to claim a credit for any amounts which have been withheld at the point of sale by the purchaser.
If you are planning on selling or purchasing property with a market value of $750,000 or greater, please contact your accountant at Brentnalls SA to determine how this legislation will affect you.
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The information provided in this information sheet does not constitute advice. The information is of a general nature only and does not take into account your individual financial situation.
It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances.