June 29, 2016
From 1 July 2016, the ATO will levy a 10% Withholding Tax on payments made to foreign residents that dispose of certain taxable Australian Property.
E.g. where a foreign resident vendor sells a property for $4 million, the purchaser could pay the vendor $3.6 million and remit $400,000 to the ATO.
This is to protect the integrity of the foreign CGT regime and ensure Australia protects the tax it is entitled to.
There are a number of exclusions; one of these being sales of real property under $2 million. Therefore this tax will not apply to the vast majority of real estate sales.
However this tax will affect Australian tax residents selling property over $2 million.
The way this withholding tax works is by treating all vendors as foreign residents. To ensure that a purchaser does not need to withhold and pay 10% of the purchase price to the ATO, Australian residents are required to obtain a clearance certificate.
The ATO has automated the clearance certificate process and this certificate will be valid for 12 months. This will give the purchaser comfort that they do not have to remit 10% of the price to the ATO.
We have been working through this with a number of clients over the last few months, if you have any questions please contact me at the below email address.