Seeking professional advice may be a worthwhile endeavour for money savvy Australians looking to sell their property, as new rules, which came into effect on 1 July 2016, now apply to the sale of Australian properties worth $2 million or more.
The new 10 per cent withholding tax rule applies to all properties, including residential, that are worth $2 million or more.
To avoid receiving a penalty, property owners who sell their homes in this price range must obtain a clearance certificate (CC) from the ATO to prove that they are Australian resident taxpayers.
Failing to produce a CC can catch property vendors out at settlement, resulting in the successful buyer having to withhold 10 per cent of the purchase price and pay it to the Tax Office instead.
Buyers who don’t withhold the 10 per cent purchase price could also be liable for the 10 per cent payment themselves, as part of the new withholding regime, which is designed to ensure foreign residents meet CGT obligations.
For the property vendor, losing 10 per cent of the purchase price can have negative flow-on effects, such as not being able to pay the rest of an existing mortgage or be able to acquire their next property.
About 2.5 per cent of residential sales so far this year have been between homes or apartments worth $2 million or more.
Property vendors who are not eligible for a CC can apply for a variation to the 10 per cent withholding rate in particular circumstances e.g. if they can prove that they won’t make a capital gain on disposal.