Sale of Prestige Property
Sale of prestige property may get more complicated from 1 July this year. Specifically, if:
- the sale price of land is over $2m; and
- the seller is a foreign resident;
the buyer is required to remit 10% of the purchase price to the ATO as a refundable tax credit for the seller’s capital gain tax on the sale. In effect, the buyer becomes (however unwillingly) an ATO collection agent.
The Gillard Government introduced legislation in 2013, and this was adopted and passed by the current government in late February 2016. The rationale is to “improve the integrity of Australia’s foreign resident CGT regime” given “… “voluntary compliance by foreign residents [with the CGT rules] is extremely low”. That is, foreign sellers have taken full proceeds and not remitted the correct CGT. This measure is designed to ensure at least some of the CGT liability is paid before the funds leave the (easy) jurisdictional reach of the ATO.
- Can obtain a ‘clearance certificate’. If provided, the buyer is relived from the obligation to remit 10% to the ATO. For example, if the seller is selling at a loss, the seller could apply for a clearance certificate. An automated process should provide clearance certificates for ‘straight forward’ sales within a few days of submission. If there are irregularities or manual processing is required, the clearance certificate may take up to 28 days to issue. No fee appears to apply. Clearance certificates can lasts for up to 12 months.
- Can also obtain a variation, effectively allowing less than 10% to be remitted. For example, if the gain will be less than 10%, a variation can be obtained so that less than 10% is remitted by the buyer to the ATO. Processing time for variations will be up to 28 days. No fee appears to apply.
- Can provide a residency declaration and provided the buyer is not aware it is false, or can provide the buyer will reasonable grounds to believe the seller is resident, no funds need to be remitted to the ATO.
Buyers (if funds are withheld):
- need to complete an online form; and
- make payment to the ATO at settlement.
The buyer’s failure to remit when required can result in a penalty equal to the amount that should be been remitted.
Therefore if you are buying or selling property over $2m, you should obtain advice, prior to entering into a contract, about your obligations under the new regime.