Property buyers and sellers have been hit with an additional paperwork burden that will make them play a direct role in the collection of capital gains tax for the Australian Taxation Office. A change introduced on July 1 requires the sellers of properties worth $2 million or more to obtain a clearance certificate from the ATO to confirm the buyer does not need to withhold from the seller the 10% withholding tax.
What Property is the Certificate needed for?
It will apply to residential, commercial or industrial property with a market value of $2 million or more that is the subject of a transaction on or after the start of the 2016-2017 tax year and is designed to ensure that foreign residents meet their Australian capital gains tax liabilities on the sale of property.
Australia’s withholding tax has been in place for some years now and is a requirement that applies if a party receiving taxable funds does not have a company number or a tax file number, or has not provided that number to a dispensing party. Essentially, it requires the party receiving the funds to substantiate that a person or an entity is a taxpayer.
Thus, a company paying dividends to its shareholders must withhold 10% of the sum being dispersed if the shareholder has not provided it with such information.
New to Australia
The new property provision was announced as far back as 2013 and became law earlier this year. While new to Australia, it already exists in a number of countries, including in Canada, France, Spain, Japan and the United States. It requires the seller to provide the clearance certificate to the buyer on or before settlement of the property purchase.
If the certificate is not provided, the buyer must withhold 10% of the sales price and pass it to the ATO.
Where to get the form
The form to be completed to obtain a clearance certificate has been made available on the ATO website at no cost. It can be completed and lodged by the seller or by a third party, such as a solicitor or accountant. Clearance certificates will be valid for 12 months, and penalties will apply for sellers who make false or misleading declarations, or where the buyer fails to withhold when it is required.
Sums withheld will be credited against foreign residents’ income tax liabilities. Sellers claim the credit for the withheld amount paid to the ATO by lodging an annual tax return.
Why it’s Important
While the additional paperwork is a burden that will not be welcomed by buyers and sellers, it is nevertheless important that overseas investors meet their tax obligations. This is of particular significance at the present time given the impact of the resources downturn on the tax-take of our governments and the difficulties federal and state governments face in funding health, education and welfare services and much-needed infrastructure.
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