Tax reforms to affect real estate transactions involving foreign residents: Real estate bulletin issue 116 (June 2016)
29 June 2016
From 1 July 2016, sellers of real estate with a market value of $2 million or more will need to apply for a clearance certificate from the Australian Taxation Office (ATO) in order to receive all proceeds of the sale.
This follows the introduction of new taxation legislation which imposes a ten percent withholding tax on foreign residents selling property of this value.
The ATO will issue clearance certificates to sellers who are classed as an Australian tax resident in relation to the transaction.
The buyer is required to withhold ten percent of the purchase price and pay it to the ATO if the seller fails to provide a valid clearance certificate on or before settlement.
Details about the withholding payment would be considered a material fact which needs to be conveyed to affected sellers and buyers.
Agents and sales representatives should notify their sellers of the reform and the need to obtain a clearance certificate when the selling price is expected to be $2 million or more.
Similarly buyers should be advised of their obligations to withhold funds if the seller does not provide a clearance certificate.
The Department understands the Real Estate Institute of Western Australian has liaised with the Law Society of Western Australia and has prepared a suitable annexure for contracts where the purchase price is $2 million or more.
Additional information on the foreign resident capital gains withholding payment is available on the ATO’s website. This includes a fact sheet for real estate agents.
Should your clients dispute the information you provide or have queries in relation to the process, they may wish to contact the ATO.