New Tax Rules Affecting Property Sales Over $750,000
From 1 July 2017, the seller of any property transaction where the market value of the property is $750,000 or above will need to provide an ATO Tax Clearance Certificate at settlement. Failing the supply of an ATO Tax Clearance Certificate by the Seller, the new laws require the purchaser to withhold 12.5 per cent of the purchase price of real property valued at $750,000 or more and to pay that amount to the Australian Taxation Office (ATO) on settlement.
Although the new laws are aimed at foreign residents, they also impact Australian residents selling properties above this value. It will impact all property transactions valued $750,000 and over, irrespective of whether the seller is a foreign person or not. Following settlement, the seller applies for a tax credit in relation to the amount withheld by the ATO for the capital gains liability arising from the transaction. This means that Australian resident sellers who are selling property with a market value of $750,000 or above will need to apply for a clearance certificate from the ATO to ensure that their sale proceeds are not withheld.
It is strongly advisable for anyone contemplating selling their property where they expect the sale price to be $750,000 or more to apply for a clearance certificate from the ATO as soon as possible to avoid any delays and possible financial losses as a result of being unable to settle by the due date. A clearance certificate is valid for 12 months from the date of issue and the certificate may be used for multiple property sales within the 12 month period. The ATO will only issue a clearance certificate to a seller that is not a ‘foreign person’ for taxation purposes. If a valid clearance certificate is provided to the purchaser prior to settlement, the purchaser is not entitled to withhold 12.5 per cent of the purchase price at settlement and the full sale proceeds are to be released to the seller.
A seller who is an Australian resident can obtain a clearance certificate by making an application here: https://www.ato.gov.au/FRWT_Certificate.asp