Emerald Chamber of Commerce Inc

Tax office introduces new rules for prestige property owners

Lucy Macken (Domain Prestige Reporter - May 20, 2016)

Prestige home sellers are being slugged with more red tape and face losing 10 per cent of their sale price thanks to measures designed to better police foreign property transactions.

Home owners who sell a property for $2 million or more will be required to provide a clearance certificate from the tax office as of July 1, the day before the upcoming federal election.

But foreign sellers will not be issued a clearance certificate, forcing buyers to withhold 10 per cent of the purchase price - or an agreed adjusted amount - to be sent to the ATO.

Foreign sellers will then be able to claim back part or all of that withholding tax when they settle their capital gains tax obligations.

The audit system is designed to stop tax revenue being lost overseas when foreign resident taxpayers return home with the proceeds of their sale without paying any outstanding capital gains tax.

Those buyers who proceed with the property settlement without a clearance certificate will be slugged with a penalty equal to the amount that was required to be withhold with interest.

The changes have not been welcomed by many in the legal fraternity who specialise in high-end property deals.

"Why should the innocent buyer be burdened with the tax problems of the vendor?," said Neil Matthews, principal of Matthews Solicitors.

"The buyer shouldn't even have to enquire about the tax affairs of the vendor, but that's effectively what the government is asking of them. And the burden then falls to the buyer's lawyer too because that's who will be sued if they get it wrong and omit to get the relevant clearance certificate."

Prestige agents were more sanguine about the impacts of the proposed changes but Michael Coombs, of McGrath Mosman, questioned if it might be easier on buyers if all vendors - including foreigners - were able to be issued with a certificate as part of the contract of sale so foreign sellers were not at risk of being avoided by buyers.

"I appreciate what the government is trying to do here, but I don't think it's fair that the vast majority of prestige vendors are loaded with this extra paperwork just so the ATO can catch those few foreign vendors who owe capital gains tax," said Mr Coombs.

Rob Ward, director of Di Jones Wahroonga, said the extra compliance burden won't necessarily hold vendors to ransom.

"Vendors can apply for this clearance certificate before they go to sell and if they can't get the certificate then they are more likely to not sell at all," said Ward.

Australians vendors will need to provide their name, address and answer three questions to receive a clearance certificate. If they have outstanding tax debts or have not lodged a tax return for the past two years, the certificate will still be issued, once further proof of their identity is established.

Assistant Commissioner Malcolm Allen said the clearance certificate will confirm that the 10 per cent withholding amount does not apply to the transaction.

"We encourage all Australian residents who are looking to sell property with a value of $2 million or more to apply for a clearance certificate as early as possible in the sale process," Allen said.

There is no ATO fee for clearance certificate applications and it is valid for 12 months from issue.

The ATO is following in the footsteps of Canada, France, Spain, Japan and the United States where withholding arrangements to ensure foreigners pay their capital gains tax

Domain Data figures show that in the year to April 10.7 per cent of property transactions in Sydney were for $2 million or more, and 5 per cent of Melbourne's real estate traded above that price point.

This story has been brought to you by the Emerald Chamber of Commerce Inc.
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