The Australian Tax Office has issued a guide aimed at conveyancers that explains how to apply for a
clearance certificate if a foreign resident vendors are disposing Australian property under contracts
entered into from July 1 2017.
Under the expanded rule, a 10% non-final withholding is applied to these transactions upon settlement.
It applies to real property disposals where the contract price is $750,000 and above – previously,
the contract price was $2 million. The FRCGW withholding tax rate will now be 12.5%, previously 10%.
The existing threshold and rate will apply for any contracts entered into from July 1 2016 and before
July 1 2017, even if they are not due to settle until after July 1, 2017.
If you are a purchaser, you have an obligation to withhold when:
– Any vendor of the asset is a relevant foreign resident
– The asset that the purchaser has acquired is a relevant asset
– The acquisition is not an excluded transaction
– The vendor does not provide a clearance certificate or make a relevant declaration
If you are a vendor, the obligation to withhold only arises if the vendor is a relevant foreign resident
and therefore holds the legal title to the asset which the regime applies to.
But how will this affect Australian residents?
All vendors – including Australian residents, selling real property are considered foreign residents unless
they obtain a clearance certificate. If a resident is selling a property over the $750,000 threshold, if they
don’t have a clearance certificate, the purchaser will be required to withhold 12.5 percent of the purchase price.
This can cause financing and administrative difficulties – for both parties, because if the purchaser buys a
property where the vendor does not provide the purchaser with a clearance certificate and the purchaser fails to
withhold 12.5% of the purchase price, they could be liable to pay that to the ATO as well as a $2,100 penalty among others.
The tax also applies even when an Australian resident is selling a property to another Australian resident and
there is no capital gains tax to pay. Since the threshold has dropped to $750,000, more people will be affected by this.
In order to obtain a clearance certificate if the vendor is not a relevant foreign resident, said vendor must complete
an online foreign resident capital gains withholding clearance certificate application form from the ATO website.
Once approved, the clearance certificate will be sent via email, provided an email address was included in the application,
or couriered to the addresses provided.
The clearance certificate is valid for 12 months from the date issued. The vendor does not have to reapply for a
clearance certificate each time they dispose a property, as long as the clearance certificate is valid.
What can be done?
Firstly, talk to your accountant, whether you are a vendor or a purchaser. Get the information you need prior to
the transaction. Look for an accountant that is up to date with the latest policy changes. Consulting with a conveyancer
is fine, however, they cannot give tax advice nor apply for a clearance certificate.
To further understand this issue and others, you can always call Femia Accountants to help you and guide
you to a more promising deal.