Don’t lose 12.5% of your sale price to the ATO

If you are selling your property and it is worth over $750,000 make sure you obtain a clearance certificate or you will lose 12.5% of the sale price.

In 2016 Australian Tax Office imposed a new tax on Foreign Residents to aid in the collection of Foreign Investors tax liabilities. As of 1 July 2017 the ATO has dropped the clearance certificate requirement from $2 million to $750,000. This will affect a huge proportion of the Sydney market.

If you are an Australian Resident and enter into a contract for certain types of Real Property over $750,000 you are required to give the purchaser this certificate to release them from their legal obligation to withhold 12.5% (previously 10%) of the sale price to remit to the government.

If you are a foreign resident vendor, 12.5% of the purchase price will be withheld and remitted to the ATO, unless the ATO approves a Variation. The main residence exemption for capital gains tax on sales of the main residence by foreign and temporary tax residents will also be removed.

Both Vendors and Purchasers can be caught out.

If a purchaser doesn’t receive the Clearance Certificate and does not withhold the 12.5%, then they are liable for the debt to the ATO.

The following asset types are captured by the legislation:

  • Real property
  • Taxable Australian real property with a market value of $750,000 or more
  • Vacant land, buildings, residential and commercial property
  • Mining, quarrying or prospecting rights where the material is situated in Australia
  • Lease premiums paid for the grant of a lease over real property in Australia
  • Other assets
  • Indirect Australian real property interest in Australian entities whose majority of assets consist of the above asset types
  • Options or rights to acquire any of the above asset types