As of the 1st of July 2017, a new ATO law regarding the sale of properties for more than $750,000 has come into action, affecting all buyers and sellers of residential and commercial property, vacant land, leaseholds and strata title schemes.
The new rule requires vendors to obtain a certificate from the ATO that proves they are not a foreign resident. If this certificate is not obtained by the settlement date, the purchaser of the property must withhold 12.5% of the sale price that will be paid to the ATO. Originally this rule only applied to buyers and sellers of property greater than $ 2,000,000. The recent change, lowering the threshold to $750,000, is a part of an ATO crackdown to “strengthen the Government’s collection of foreign resident capital gains tax (CGT) regime to assist the collection of foreign resident’s tax liabilities”. This crackdown may be a result of the pressure on the Government to curb foreign investment.
These additional administrative and legal procedures can add more stress and time to an already lengthy settlement procedure, as the onus is on the buyer to request this certificate from the vendor. If the certificate is not provided and the buyer does not withhold the 12.5% from the sale price there can be significant penalties, amounting up to the cost of the tax itself. On a property sold for the minimum of $750,000 this would be a ludicrous penalty of $93,750. This shift in the ATO’s process is described by Santina Taranto from the Australian Institute of Conveyors, as a case of “foreign until proven otherwise” and has the potential to catch many buyers unaware of this additional ATO hurdle.
The certificate itself represents numerous complications if the vendor of the property:
Has not lodged a tax return for a number of years.
Has lodged tax returns that would indicate they were unable to afford the property.
Is selling their property at the same time as a neighbour to a single developer, which may exclude them from the CGT exemption.
Is believed by the ATO to be involved in the development of property that may indicate they are also excluded from the principal residence CGT exemption.
As an accounting firm with extensive experience in navigating through both the ATO’s difficult hurdles and the property market’s hidden complexities, please contact us if you are a buyer or vendor in the market for any assistance you may require.