Spring is cyclically the busiest season for buying and selling houses. If you’re buying or selling a property, here are some recent tax law changes that may affect you.
New withholding tax laws
New legislation requires the purchaser to withhold a non-final tax of 10% on the purchase price of contracts entered into on or after 1 July 2016.
It applies to all commercial and residential properties with a market value of $2 million or more, and also includes:
- Indirect interests in Australian real property (ie. 10% or more interest in an entity whose underlying value is principally derived from Australian real property)
- Mining, quarrying or prospecting rights.
In an arm’s-length sale, the purchase price will be taken to be market value. Therefore a property selling for less than $2 million, regardless of the vendor’s asking price, will not be subject to these rules. Conversely a property that sells at auction for over $2 million, even if the reserve or expected price is lower, would be subject to these rules.
Who is responsible for withholding?
The purchaser is liable for withholding and will be liable to pay a penalty equal to the amount they failed to withhold, as well as general interest charge if paid late.
The amount to be withheld is 10% of the purchase price unless a clearance certificate or variation notice is provided to the purchaser at settlement.
Who needs a clearance certificate or variation notice?
Clearance certificate:
All vendors of properties valued at $2 million or more are taken to be non-resident for this withholding. Therefore resident vendors should obtain a clearance certificate to avoid creating a withholding obligation for the purchaser. The clearance certificate certifies that the vendor is not a foreign resident and that no amount should be withheld on the sale price at settlement.
Variation notice:
If the vendor is unable to obtain a clearance certificate because they are non-resident, they may apply to the Commissioner to vary the amount withheld. Reasons the Commissioner may grant a variation include, for example, where the vendor will make a loss on sale, or if they have prior year losses that may reduce their overall capital gain.
Clearance certificates and variation notices may only be lodged by yourself, legal practitioner or tax agent. Real estate agents are not permitted to lodge on behalf of the vendor unless they are legal practitioners.
For those who may be looking to buy a property and require help sourcing the most suitable loan, please don’t hesitate to contact Accru’s lending specialists. Whether you are a first home buyer or an experienced investor, our specialists are here to help you plan ahead.
By Rachel Luu, Accru Melbourne