Home owners with properties worth more than $2 million are set to be slugged with a 10% tax, unless they can prove they are an Australian resident with a special certificate from the Australian Tax Office.
Owners unable to obtain certification from the ATO will be forced to pay a 10% withholding tax when they sell their property.
The measure, due to come in to effect on July 1, is the latest in a crackdown on foreign property investors, who avoid paying capital gains tax when selling Australian properties.
Also coming in to effect on July 1, the Victorian Government will raise the levy on foreign purchases of apartments from 3 to 7 per cent.
“The legislative changes will put Australian and foreign residents on a level playing field, but will have their challenges. The tax compliance burden for resident taxpayers will significantly increase and conveyancers will need to ensure their clients are abiding by the new laws to limit property settlement delays,” explains Manda Trautwein, Director at William Buck.
What does this mean for buyers?
Ms Trautwein says it will mean buyers now have an obligation to withhold 10 per cent of the property price to ensure the purchaser is compliant with the new regulations.
“Otherwise they could be liable to pay a penalty which is up to the full 10 per cent of the purchase price plus interest.”
What does this mean for sellers?
They could have less funds available.
“Which might otherwise have been available to discharge the mortgage on the property and/or fund a new property purchase. They could end up with only 90 per cent of the proceeds on settlement unless they are able to obtain a clearance certificate from the tax office. If there are data irregularities, delays of between 14 to 28 days are expected to obtain a clearance certificate.”
“The legislative changes were introduced to reduce difficulties that can be associated with collecting tax on gains resulting from the sale of property assets from foreign resident taxpayers. Some of these tax payers have a limited connection to the Australian tax system and may be in a position to transfer proceeds offshore prior to compliance action being taken. Voluntary compliance by foreign residents in this regard is said to be extremely low.”
The Real Estate Institute of Australia says changes will be felt mostly in the Melbourne and Sydney markets, where 4.5% of homes on the market in NSW are worth more than $2 million, and 2.5% in Victoria.