Starting July 2016, any property transaction worth more than $2 million dollars will require the purchaser to withhold 10% of the sale price to pay the Australia Tax Office. Here are the ATO rules on Foreign Resident Capital Gains .
Why have Foreign Resident Capital Withholding?
It is introduced by the government to address foreign residents who don’t have to lodge a tax return and profit from capital gain in Australian property. It is also difficult for the ATO to chase people who move overseas and never return to Australia.
Instead, the ATO will force an amount to be withheld that can only be refunded to the vendor upon lodgement of the their income tax return (and payment of their CGT liability).
This mean for the purchaser to avoid this obligation is to obtain a ‘clearance certificate’ from the vendor. A clearance certification is obtained from the ATO and states that the vendor is not a foreign resident. This certificate is valid for 12 months, so it can be obtained by the vendor before the property is listed for sale.
An important point is that the purchaser is liable for the 10% if it is not paid to the ATO.
How will this affect property investors?
a) If you are buying a property worth more than $2 million dollars. Then during settlement you should be aware of the capital gain clearance certificate. Otherwise you are liable for the 10% of sale price.
b) The solicitor should be aware of these changes and be requesting a clearance certificate from the vendor (if not already provided) to free them from the obligation. However it is good to be aware of this just incase it is overlooked by the solicitor.