From 1 July 2016, new laws will apply on any property transaction relating to property with market value of $2 million or above.
Under the new laws, purchasers will be required to withhold 10% of the purchase price of real property $2 mil or more and pay that amount to the Australian Taxation Office on settlement, unless the seller obtains a clearance certificate.
Once the 10% payment has been made and the transaction has been settled, the vendor or seller is to apply for a tax credit in relation to the amount withheld by the ATO for the capital gains liability arising from the transaction.
The ATO will only issue a clearance certificate to a vendor that is not a ‘foreign person’ for taxation purposes.
Australian residents may apply online for a clearance certificate, which will remain valid for 12 months from the date of issue and can be used for any property sales within that period.
Applications for clearance certificate can be made from 27 June 2016.
Australian vendors with a clearance certificate must provide the certificate to the purchaser on or before settlement to avoid the purchased withholding 10% of the purchase price.
The ATO has stated that the new laws are aimed at ‘foreign’ vendors, but they will impact all property sales valued $2 million and over, whether the vendor is a ‘foreign person’ or an Australian resident.
The rules apply to various property types including vacant land, residential property, commercial property, strata title and community title schemes.
More information and answers to FAQs are available here.