The ATO have announced some controversial changes to property transactions $2m and above.
I asked John Melis, Director at Legal AU, to explain what these changes really mean.
“Effective 1 July 2016 a new withholding regime will apply to contracts of sale entered into on or after 1 July this year.
The new regime applies to property on or over $2 million, and is basically targeted at foreign residents; however, the catch net will also involve normal property transactions with Australian residents being caught with selling on or over that value.
This new withholding regime requires the purchaser to withhold and pay to the Australian Taxation Office 10% of the proceeds from the sale.
That means if the sale is $2 million as example, the withholding amount will be $200,000.00.
The assets that are affected include, land, buildings, residential and commercial property, mining, quarrying or prospecting rights, interests in Australian entities that predominantly have assets.
There are exclusions to this new rule, which include if the transaction value is under $2 million, or the transaction is on an approved stock exchange, or the seller is under external administration or in bankruptcy.
For vendors that are caught within this sell range, they will need to present a clearance certificate from the Australian Taxation Office to the purchaser, which demonstrates that there is no liability owing to the government by that vendor.
The clearance certificate can be provided to the purchaser on or before settlement, but it is suggested that this important document be provided prior to settlement to ensure a smooth transaction.
Where a clearance certificate is provided that demonstrates there is no liability owing by the vendor to the Australian Taxation Office, the 10% withholding by the purchaser does not need to apply.
So it is important that vendors of real estate with property being sold at $2 million or above, apply for these clearance certificates at the earliest possible time, as the process to obtain this important document will take 1 to 14 days for a normal situation, and 14 to 28 days when there are irregularities.
If a property sale occurs at $2 million or above, and there is no clearance certificate, the purchaser needs to withhold 10% of the purchase price and remit that amount to the Australian Taxation Office at settlement.
There are lots of issues and risks that can, and may occur, to both vendor and purchaser with the introduction of this new regime, and it is always prudent to seek that legal advice in advance the moment you are considering, or talking to your agent, about selling or buying a property that is $2 million or above.”
The comments in the aforementioned do not constitute legal advice and are general in nature, and if legal advice is required please contact: John Melis at Legal AU Pty Ltd (03) 9999 7799 www.legalau.com