From 1 July 2016, the sale of Australian property for $2m or more will be subject to a 10% withholding tax.
The new law is targeting non residents who evade capital gains tax on the sale of Australian property but will be applied broadly for administrative ease.
The law doesn’t just target investors, it will sweep up homeowners. Purchasers will be required to withhold 10% of the sale price of (any type of property) sold for $2m or more and remit it to the Tax Office.
Thankfully, vendors are given the opportunity to prove they are not non residents for tax purposes by obtaining a ‘Clearance Certificate’ prior to the settlement. The receipt of a Clearance Certificate absolves the purchaser of a withholding obligation.
The Tax Office has promised that a straightforward, online process for purchasers to obtain a Clearance Certificate will be operational by the start date of 1 July 2016.
Consideration – if you are likely to be selling or buying property, an unconditional contract signed prior to 1 July 2016 will mean the new rules will not apply to the transaction.
The new law covers 'Taxable Australian Real Property' (generally, this means an interest in Australian land), as well as certain 'indirect Australian real property interests' (such as shares in companies that own a lot of land) and options to acquire such assets.
If you are a seller who inadvertently is subject to the withholding tax, you will have to apply to the Tax Office for a refund which will mean significant delays to the receipt of at least $200,000.
If you require further information, please contact us.