A factsheet has been released by the Australian Tax Office (ATO) with more information on the new withholding tax regime.
Under the new law, vendors selling a property for over $2 million will need to apply for a clearance certificate to avoid the purchaser withholding 10% tax from the purchase price. The objective of the new law is to ensure foreign residents pay 10% tax on any profits earned from the sale of a taxable Australian property.
The new legislation will start on 1 July 2016 and the factsheet explains how only an Australian resident can be granted a clearance certificate.
It also reveals:
A clearance certificate can be applied for at any time, including before a property is even listed, and is valid for 12 months. To obtain one, a vendor must complete an online application form from www.ato.gov.au/FRCGW, which will be available from 27 June
If the vendor is automatically assessed as an Australian resident, a clearance certificate will be issued electronically within days of the application being submitted. If there are data irregularities or exceptions, the clearance certificate will be provided within 14–28 days. Higher risk and unusual cases may take longer.
If there are multiple vendors selling the property, it is the total market value of the property that determines whether withholding is required by the purchaser. The amount of withholding will be in proportion to each vendor’s interest in the property, with the total equal to 10% of the property’s market value.
Each purchaser must withhold in proportion to their percentage of the total purchase price.
Where the vendor is not entitled to a clearance certificate, but believes a withholding of 10% is inappropriate, they can apply to the ATO for a variation
Reasons for a variation could include:
- a foreign resident not making a capital gain on the transaction (for example, because they will make a capital loss or a CGT rollover applies)
- a foreign resident not otherwise having an income tax liability (for example, because of carried-forward capital losses or tax losses)
- a scenario where there are multiple vendors, only one of which is a foreign resident.