From 1 July 2016, a number of changes will apply to transactions
where a freehold property with a market value of $2 million or more
is being purchased or sold.
Important changes affecting vendors
Australian-resident vendors of real property with a market value
of $2 million or more will need to apply for a clearance
certificate to confirm they are not a foreign entity. The
certificate must be provided to the purchaser before settlement to
ensure that no amount is withheld from the sale proceeds. A
clearance certificate can be obtained from the ATO by the vendor
(or their agent) by completing the Foreign Resident Capital Gains Withholding Clearance
A clearance certificate form lodged online can take up to 14
days to be processed and is valid for 12 months after it is issued.
Vendors may want to apply for a clearance certificate before
listing their property.
If the vendor is not entitled to a clearance certificate but
believes a withholding rate of 10% is inappropriate, they can apply
for a variation by completing the Foreign Resident Capital Gains Withholding Rate Variation
Application requesting that a lesser withholding rate be
applied. The vendor must provide notice to the purchaser of the
variation prior to settlement.
Important changes affecting purchasers
For real property transactions with a market value of $2 million
or more, the purchaser must withhold 10% of the purchaser price,
unless the vendor provides the purchaser with a clearance
certificate by the settlement date. If an amount is withheld, the
purchaser must complete the Foreign Resident Capital Gains Withholding Purchaser Payment
Notification form, which provides the ATO with details
about the vendor, purchaser and the asset being acquired.
If a purchaser is required to withhold an amount, they must pay
it to the ATO without delay. The penalty for failing to withhold is
equal to the amount that was required to be withheld and paid.
The new regime applies when parties enter into a contract to
sell, transfer or assign any of the following on or after 1 July
any interest in Australian land, buildings, residential or
commercial property (including a lease)
a mining, quarrying or prospecting right for resources situated
a 10% or more interest in an Australian entity that
predominantly holds any of the above assets, or
an option or right to acquire any of the above.
The withholding regime will also apply to contracts that arise
out of an option agreement entered into before 1 July 2016, but
exercised after 1 July 2016.
There are a number of transactions that are excluded from the
new withholding regime, including any real property transactions
with a market value of less than $2 million, transactions listed on
an approved stock exchange and where the foreign resident vendor is
under external administration or bankrupt.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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