Looking to buy or sell a residential property? You may be affected by the ATO’s new tax laws

Posted by Gillian Leahy on 24 May 2017

Property laws are constantly changing. To stay ahead of the game, you need to stay up to date on all the latest rules and regulations. If you are looking to buy or sell a residential property you may be affected by new ATO tax laws. The property experts at Selvaggio Lawyers have all the information you need to make sure you are adhering to the rules when selling or buying a property. 

In July 2016, the Australian Taxation Office (ATO) introduced important changes to tax laws in response to increasing foreign investment in Australia. Although the new laws are directed at ensuring that foreign residents meet all of their capital gains tax liabilities, the new laws may still apply to Australian residents. The new tax laws automatically apply to all sales of residential properties after 1 July 2016 that have a market value of $2 million or more. If the new laws apply, the buyers of the residential property must withhold 10% of the sale price of the property and pay that amount to the ATO at settlement.

However, the new laws do not apply to properties which have a value of $2 million by Australian residents where the seller of the property has provided a ‘Clearance Certificate’ to the buyer on or before the date of settlement. 

It is important that you are aware of these new tax laws if you are a seller or a buyer of a property with a market value of $2 million or more because penalties apply if you do not fully comply with the laws. This means that:

  1. If you are a buyer of such a residential property, you will be liable to pay 10% of the property’s sale price to the ATO if: 
    a. The seller is a foreign resident and has not provided you with a valid ‘variation notice’ prior to settlement; or 
    b. The seller is an Australian resident who has not provided you with a valid Clearance Certificate before settlement.

    If you fail to pay the withholding amount to the ATO, you will face a penalty which will include interest which may be equal to the total withholding amount. 

    2.  If you are a seller who is an Australian resident, it is important that you apply to the ATO for a Clearance Certificate as soon as possible to avoid the withholding tax obligation from applying to you. 

    In order to comply with the new laws, you must lodge your free application for a Clearance Certificate with the ATO and provide the buyer with a valid Clearance Certificate prior to settlement. It is important to note that Clearance Certificates are only valid for 12 months from the date of their issue.

    3. If you are a seller who is a foreign resident, you cannot avoid the 10% withholding obligation from applying to you unless you apply to the ATO for a variation of that obligation. If the ATO grants you a variation, you must provide a ‘Variation Notice’ to the buyer before settlement. 

Any 10% withholding tax which is paid by a buyer to the ATO will then be credited against your final income tax liability. 

If you are contemplating selling or buying a residential property with a market value of $2 million or more, and are unsure about how these new tax laws may affect you, Selvaggio Lawyers can assist you. We can provide you with sound legal advice to ensure that your sale or purchase fully complies with the new tax laws. 

Contact Selvaggio Lawyers today to learn more about the new ATO laws and to arrange a consultation.