The settlement process when selling or buying real property or
interests in real property in Australia has changed. The purpose of
these changes is to assist the Australian Taxation Office with the
collection of capital gains tax from foreign residents.
These changes took effect on and from 1 July 2016 – and
only apply if:
the contract for sale is entered into on or after 1 July 2016.
If a contract is entered into before 1 July 2016, regardless of
when the sale settles, this new process does not apply;
the asset being acquired is a relevant asset;
the seller of the property is a foreign resident;
the purchase does not fall within one of the exclusions.
The new procedure is not relevant for only foreign residents,
and applies to real property and interests in real property,
vacant/residential/commercial land with a market value of
$2,000,000 or more
certain mining rights
certain leasing rights
The changes also apply to assets known as 'other
indirect Australian real property interests – being an
interest in an Australian entity (e.g. as a shareholder) which has
the majority of its assets in any of the above real property
options or rights to acquire any of the above real property or
indirect real property
Foreign Residents & Exceptions
The most important aspect of the change, is that unless one of
the exceptions applies, it requires the buyer to withhold 10% of
the purchase price from the seller and pay it to the Australian
Taxation Office (withholding payment). The seller
may then, provided they have followed the process, claim a credit
for the withholding payment when completing their next tax
As the changes are aimed at the collection of capital gains tax
from foreign residents, there are exceptions for sellers that are
not foreign residents, provided they follow the correct
For the exceptions to apply, the seller needs to satisfy the
buyer that it is not a foreign resident. The seller can do this as
For real property with a value of more than
If the seller is an Australian resident and they obtain a valid
clearance certificate from the Australian Taxation Office prior to
settlement. A valid clearance certificate confirms that the
withholding payment is not applicable to the sale. If this
certificate is obtained before settlement and provided to the
buyer, then the buyer is not obliged to make the withholding
payment to the Commissioner.
A clearance certificate is valid for 12 months from the date of
issue, and can be obtained prior to a property being listed or
sold, but must be received and given to the buyer before settlement
to avoid the withholding payment.
For any other asset type, either:
a valid vendor declaration, confirming that the seller is not a
foreign resident, will need to be signed; or
a valid vendor declaration, confirming that the interest (e.g.
shareholder) is not an indirect Australian real property
A vendor's declaration is valid for 6 months, and is only
valid if the buyer does not know the declaration to be false.
What should you do next?
The changes that have taken effect are detailed and wide
reaching, and stipulate set procedures that need to be followed. A
failure to comply with the new process can result in penalties
Any person or entity that is contemplating the sale or purchase
of any Australian real property assets or interest should determine
if these changes apply to the transaction.
The above information is only intended as a general and brief
overview of the changes and the new process. This information is
not intended to cover all aspects of the new procedure and specific
advice should be sought on the basis of individual
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.
Kott Gunning is a proud member of
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
ATO has released 2 draft fact sheets relating to the 2010 amendments to corporate law and tax in relation to dividends.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).