The New Tax Problem You Didn’t Know You Had
Sellers Obligation
If you are selling a property with a market value of $2 million or more, you must have a clearance certificate, or the purchaser is obliged to withhold 10% tax.
Purchaser Beware:
If you don’t withhold the tax and you don’t have a clearance certificate from the vendor, you are liable for the tax ($200k on a $2 million sale)
I’m selling a property what do I need to do?
Selling real property with a market value of $2 million or more? You need to apply for a clearance certificate from the ATO. Without this certificate, the purchaser of your property must assume you are a foreign resident and will be permitted to withhold 10% of the purchase price and remit it to the ATO.
The clearance application is done online, and the certificate remains valid for 12 months.
I’m buying a property what do I need to do?
Buying a property with a market value of $2 million or more? You need to ensure that you receive the clearance certificate from the vendor before settlement occurs. While the tax rules allow you to withhold 10% of the purchase price if clearance certificate is not provided, it might also be a good idea to have this built into the sale contract to avoid any uncertainty.
If the sale proceeds and you don’t have a clearance certificate and have not withheld the tax, the tax liability rests with you, the purchaser.
More than one Purchaser?
The market values of all of the interests to be acquired need to be aggregated to determine whether the $2 million threshold applies.
Exemptions to the new Withholding Tax
- Properties with market value of less than $2 million.
- May not apply to company title arrangements
- Where foreign resident vendor is under external administration (company) or is bankrupt (individual)
The $2 million exclusion does not apply to indirect interests in Australian real property such as shares in a company or units in a trust that hold real property in Australia
Buying or selling indirect property interests – shares in a company or unit trust
If you are buying or selling shares in a company or units in a trust then a withholding obligation can also be triggered, even if the company or trust does not hold any real property interests in Australia.
Can we vary the withholding tax?
The Commissioner has the power to vary the amount that is payable under these rules. Either a vendor or purchaser may apply to vary the amount to be paid to the ATO. If the Commissioner agrees to vary the amount, it is only effective if it is provided to the purchaser before settlement occurs.
Should you have any questions regarding this new withholding tax, or not sure if this applies to you,
please contact our office on 3286 1322.
