The Australian Tax Office (ATO) has a withholding regime that attempts to ensure people, who are deemed foreign residents, and sell property are paying their capital gains tax obligations prior to the proceeds from the sale being moved off-shore.
What property sales are affected?
All transactions where the purchase price is $750,000 or more.
What do sellers have to do prior to settlement?
- Sellers (individuals and companies) must apply to the ATO for a Clearance Certificate.
- Give the Clearance Certificate to the buyer and their conveyancer/settlement agent prior to settlement.
What does the ATO do?
- The ATO will determine if the seller is deemed a foreign resident.
- The ATO should issue a Clearance Certificate to all applicants who are not foreign residents.
Please note: REIWA understands that there may be delays in the ATO issuing a Clearance Certificate if there are outstanding taxation returns or other unresolved matters with the ATO.
What does the buyer do if a Clearance Certificate is received prior to settlement?
- The buyer will give the Clearance Certificate to their conveyancer / settlement agent.
- The buyer, at settlement, will not withhold any money.
What does the buyer do if a Clearance Certificate is not received prior to settlement?
- The buyer will notify their conveyancer / settlement agent that a Clearance Certificate was not received.
- The buyer at settlement must withhold 12.5 per cent of the purchase price.
- The buyer at settlement must pay the 12.5 per cent of the purchase price to the ATO.
What does the seller do if they are not issued with a Clearance Certificate and the ATO receives 12.5 per cent?
When the seller submits their tax return, the ATO will assess any capital gains tax liability.
Can the seller delay settlement if the Clearance Certificate has not been received?
Only through agreement between the buyer and the seller.
How to apply?
To apply for a Clearance Certificate click on the link below:
For more information, visit: www.ato.gov.au and search for: Impacts on foreign and Australian residents
Property withholding rules explained
Some quick facts you need to know:
- All contracts of sale signed on or after July 1st 2017 where the consideration value is greater than or equal to $750k require a Clearance Certificate issued by the ATO.
- Failure to obtain a Clearance Certificate will require the purchaser’s agent (Conveyancer) to retain 12.5% of the sale price at settlement and remit funds to the ATO on the day of or shortly after settlement. General interest charge may be imposed on amounts paid after the due date.
- Conveyancers representing the purchaser should ensure a Clearance Certificate has been obtained in the days leading up to settlement.
- Real-estate agents/sales reps should ensure their clients (vendor) obtain a clearance certificate prior to or near to the point of listing the property.
- Vendors should not rely on their own judgement in assuming a Clearance Certificate will be issued without delay. An outstanding debt or failure to have lodged a tax return in recent years may result in the ATO declining a Clearance Certificate.
- In the event a Clearance Certificate is not produced in the days leading up to settlement it is recommended that the purchaser contact the real-estate agents/sales rep and seek a variation. Alternatively, the purchaser should seek legal advice.
- Failure to ensure a Clearance Certificate on the day of settlement will result in the purchaser’s Conveyancer being obligated to withhold 12.5% to be remitted to the ATO.
- Clearance Certificates must be produced for all sales regardless of the origin, nationality or resident status of the vendor(s). The requirement extends to companies selling properties. The rule of thumb is that the named person or entity appearing on the Certificate of Title as a registered proprietor must comply.
- The burden of applying for or facilitating the Clearance Certificate should not be that of the vendor’s Conveyancer.
- Licensed settlement agents are permitted to charge their client (vendor) a fee for submitting the form on their behalf. This fee must be disclosed prior to the client signing the authority to act. A fee for cannot be charged for assisting with completing the form.
- Licensed settlement agents are permitted to charge their client (purchaser) a fee for withholding the 12.5% remittance to the ATO. This fee must be disclosed prior to the client signing the authority to act.
- In the event a Clearance Certificate is not issued by the ATO the client (vendor) will be notified as to why by the ATO.
- Any outstanding issues or sum owed to the ATO may be resolved by the Vendor completing or seeking legal assistance to complete the “Foreign resident capital gains withholding purchaser payment notification form”. Under no circumstances should AICWA members assist with completing the form.