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Property Update: More Compliance Requirements when you sell a property

Commercial Law

Did you know that the Australian Taxation Office (ATO) considers you a foreign resident until you prove your Australian tax residency status?

From 1 July 2016, Vendors selling property in Australia with a sale price of $2 million or more must apply to the Australian Tax Office for a Clearance Certificate to avoid 10% of the price being withheld and paid to the ATO on completion of the sale of their property.

This will apply even if you are selling your principal place of residence which will not normally be liable for assessment for Capital Gains Tax.

The Australian Tax Office may issue the Clearance Certificate to you if they are satisfied you are an Australian resident for tax purposes. A Clearance Certificate may not issue where you have not lodged a tax return.

The turnaround time for obtaining a Clearance Certificate, according to the ATO, is approximately 48 hours from submission of your application form, however, there may be delays. A Clearance Certificate must be served upon the Purchaser of your property at least 7 days prior to settlement. If the Clearance Certificate is not provided, the Purchaser has an obligation to withhold 10% of the sale price on completion and pay this amount directly to the Australian Tax Office.

The application form for the foreign resident capital gains withholding clearance certificate must be completed by each Vendor and can be found at:

https://www.ato.gov.au/Forms/Foreign-resident-capital-gains-withholding-clearance-certificate-application-instructions/

If you are a foreign resident (or you are not an Australian Resident for taxation purposes) you can also apply for a Variation Certificate which will provide you with details of a possible reduction to the withholding amount of 10%. The Variation Certificate may reduce the withholding rate to nil. It may take up to four weeks or more to obtain a Variation Certificate. A variation Certificate would be applied for in circumstances where:

• you are not an Australian Resident for taxation purposes;
• you will not make a capital gain upon the sale of the property;
• you will not otherwise have an income tax liability;
• there are multiple Vendors and only one is a foreign resident; and
• in circumstances where the proceeds of sale will not be sufficient to both:

– repay creditors (such as the mortgagee) and

– the withholding amount.

A foreign resident will be entitled to a credit for the amount paid provided they lodge an income tax return to claim the credit.

The objective of the new legislation is to ensure that foreign residents pay Capital Gains Tax in respect to the sale of taxable Australian property. Please contact any member of our Property Team if you require further information.