Edit – these rules have changed from 1 July 2017 and now apply to property valued at $750,000 or more, and the withholding rate is 12.5%.

The ATO has introduced a new rule for Australian residents buying or selling property valued at $2 million or more.

So how does this work?

The ATO wants any Australian Resident who purchases Australian property to withhold 10% of the purchase price and remit this to the ATO.

The exception to this is if the seller provides the purchaser with a “clearance certificate” on or before the day of settlement.
The clearance certificate is designed to provide the ATO with the information to determine the seller’s tax residency status and whether or not the 10% withholding tax should apply.

How do you obtain a clearance certificate?

A PDF version of the form is available through the ATO website and once completed, the original should be faxed or posted to the ATO and a copy retained. Clearance certificates are valid for 12 months from the date of issue.

How will the credit for the withholding tax be claimed?

Assuming the purchaser pays the amount to the ATO, the ATO will notify the seller that the payment has been received. If the seller provides their TFN to the purchaser then the ATO can easily match the payments when the purchaser lodges the “purchaser payment notification”. The purchaser payment notification is the form the purchaser lodges with the ATO along with the 10% withholding tax.

In Summary.

  • Sellers and purchasers of Australian property or other CGT asset on or after the 1st July 2016 will have to comply with these new rules.
  • Whether or not an amount needs to be withheld and the entire process that follows will depend entirely on the tax residency of the seller.
  • The 10% withholding amount is calculated based on the market value of the property.
  • Ignorance of the rules doesn’t appear to be an excuse and if a purchaser fails to remit to the ATO the amount they should have withheld, the ATO will apply a penalty equal to that amount. (also subject to interest)
  • If the purchaser doesn’t remit the amount withheld to the ATO then the seller will not be entitled to a credit when they submit their tax return.
    The ATO would then pursue the seller for any amount not remitted to the ATO by the due date

Further information can be sought from the ATO directly, real estate agents, conveyances’ or legal practitioners.

Author: Adrian Wardlaw
Email: adrian@faj.com.au