New Withholding Payment Rules on Property Sales
From 1 July 2016, any buyers of Australian residential property which has a value of $2m or more will need to consider if they should withhold 10% of the sales price and pay it to the ATO.
These rules were introduced to ensure that non-residents selling property in Australia paid the appropriate tax on any gain they made. The rules however are broad and place significant responsibilities on all vendors and purchasers to determine if the rules apply and which course of action to take.
If you are an Australian Tax Resident you will still need to apply for a clearance certificate from the ATO to avoid the purchaser deducting the 10% withholding payment. This certificate needs to be obtained and provided to the purchaser no later than the date of settlement.
Vendors, or their Tax Agent or Lawyer, can complete the clearance certificate request with the ATO.
Non-Resident Vendors should also consider if a variation application should be lodged. In some instances the ATO will use its discretion to reduce the withholding to amount less than 10%. This is likely where the vendor has a higher cost base associated with the property and the tax on any gain would be less than the 10% withheld. Vendors should consult closely with their tax advisor to work through this calculation.
Where a clearance certificate is not granted, or if a reduced withholding is made, the vendor will need to lodge a tax return and claim a credit for the payment withheld against any tax owing on the disposal.