ATO CLEARANCE TRAP FOR OVER $2 MILLION PROPERTY TRANSACTIONS

If you are buying or selling Australian real estate after 1 July 2016 with a market value of $2 million or more, you will, unless an exemption applies, be subject to the application of the Foreign Resident Capital Gains Tax Withholding Regime.  The purpose of such regime is to ensure that foreign residents who dispose of certain “capital gains assets” in Australia, pay the appropriate Capital Gains Tax to the ATO.  If you are purchasing property to a value of $2 million or more, unless each and every vendor provides a clearance certificate issued by the ATO, you must withhold a remittance amount equal to 10% of the purchase price of the property (including GST, if any, and any other non-monetary consideration forming the purchase price) and pay this amount to the ATO on or before settlement.

Consequently, if you are purchasing property for $2 million or more, you must ensure that you receive the relevant clearance certificate from the vendor, whether or not the vendor is a foreign resident or, failing this, you must complete an online ‘Purchaser Payment Notification’ with the ATO and either before or immediately after settlement has taken place, pay the remittance amount to the ATO.

On the other hand, if you are selling property for $2 million or more, in order to avoid having the required remittance amount deducted from the purchase price, even if you are an Australian resident, you must obtain an ATO clearance certificate and provide it to the purchaser.  If you do not provide such a clearance certificate to the purchaser, the purchaser must withhold the remittance amount from the purchase price.

In light of the serious consequences which will flow from the failure to comply with the abovementioned requirements, if you are a purchaser or a vendor of property for $2 million or more, you should seek advice and guidance from your legal adviser.

Ian Griffiths

Posted in Tax