Property Purchases - New Withholding Regime

Jan 03, 2019

A new regime was introduced to allow the Australian Government to tax foreign investors disposing of certain taxable Australian property with effect from 1 July 2016.

It applies to most transfers of real estate in Australia unless an exception applies, and will apply to everyone including resident individuals, companies and superannuation funds.

Broadly, purchasers of either a direct interest in real property or an indirect interest that provides company title interest, are required to withhold 12.5% of the market value of the property if the value equals or exceeds $750,000, unless the vendor provides the purchaser with a valid clearance certificate obtained from the ATO. Given current property values in Australia, many transactions are likely to be impacted by this regime. 

It is important to note that the above threshold does not apply in the case of an option or right to acquire property, all such transactions are covered by the regime.

For contracts entered into between 1 July 2016 and 30 June 2017, the market value threshold was $2,000,000 and the withholding rate was 10%.

It is the vendor’s responsibility to obtain the clearance certificate from the ATO and provide a copy to the purchaser either before or at settlement, to avoid the withholding. Where a valid clearance certificate is provided there is no requirement to withhold. It is expected that conveyancers will assist the purchaser with the process. If a valid clearance certificate is not provided then the obligation to withhold is on the purchaser, this will typically be the case when the vendor is a non-resident. In this case, the relevant amount is required to be paid to the ATO on settlement.

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