From 1 July 2018, a number of changes will impact buyers of all property with a value of $750,000 or more, and all new residential property. Buyers should be aware of these changes given that in both cases, the burden to withhold and remit amounts to the Australian Taxation Office (ATO) will fall on them.
Foreign resident capital gains withholding
Since 1 July 2016, purchasers of certain real estate have been required to withhold 10% of the purchase price and pay this directly to the ATO. These rules were put in place to stem the tax leakage caused by foreign resident property owners not paying the required Capital Gains Tax when disposing of Australian property.
The Federal Government has subsequently tightened these rules effective from 1 July 2017 as follows:
- applies to all properties in Australia (residential and commercial);
- purchases of land rich entities and options or rights to acquire are also captured;
- applies to real estate with a value of $750,000 or more (previously $2m); and
- withholding rate has increased to 12.5% (previously 10%).
In order to avoid the requirement to withhold, vendors of property must provide the purchasers with a Clearance Certificate obtained from the ATO which is no more than 12 months old at the date of settlement. Of course, foreign resident property owners will not be able to obtain this certificate in which case the purchaser will be required to withhold the required 12.5% and remit the same to the ATO.
Whilst the withholding tax appears to be a penalty imposed on vendors, it is actually the purchasers’ responsibility for determining the requirement to withhold and remit amounts to the ATO. As such, it is important that purchasers of real estate are aware of their obligations.
GST Withholding on ‘new residential premises’
The Federal Government is proposing new legislation which if passed, will become effictive from 1 July 2018 and will have impacts on sellers and buyers of new residential property.
This new proposed legislation will apply to certain new residential properties (including potential residential land included in a property sub-division plan) and will require purchasers to withhold an amount of the purchase price (on account of the GST) from the vendor and remit these amounts directly to the ATO.
Again, the obligations to withhold will significantly fall on the purchaser so it will be important for purchasers and their advisors to be accross these proposed changes, noting that the ATO has yet to release any significant details about the specific administration process. Key takeaways however include:
- consideration by developers and other vendors of applicable property of the impact on their cash flows;
- understanding the respective reporting and disclosure obligations of vendors and purchasers; and
- changes to the settlement process.
Please feel free to contact a member of the Navarra Kovac team if you require further information.
Navarra Kovac Chartered Accountants 