Australian Tax Advisor, Steve Douglas, addresses your concerns.
Is it true that there is a new tax to pay when you sell your Australian property? How does this affect homeowners like me?
The truth is, there aren’t any new taxes on Australian property. However, there was some legislation passed February 22, 2016, that now allows the Australian Government to collect a withholding tax of 10 percent of the purchase price on the sale of properties over A$2 million when the properties are owned by foreign residents. Although the law has passed, the commencement date for this tax is only for contracts signed after July 1, 2016.
How the Withholding Tax Works
This withholding tax is collected from the purchaser at settlement and paid to the Australian Taxation Office (ATO), pending the lodging of the seller’s income tax return. If the Capital Gains Tax that is applicable to the sale is less than the 10 percent withheld, then a refund will be provided, and if it is more, the balance will become payable. The introduction of the withholding tax is to ensure better compliance from property owners living overseas, who, traditionally, have been a bit tardy in attending to their taxation obligations properly.
For Those Who Live Abroad
If you live outside Australia, but own an Australian property that is collecting rental, or if you have sold or transferred said property during a tax year, it is a legal requirement to lodge an Australian Income Tax return and report the activity. Even if your ownership costs are greater than the rental, or if you sell the property for less than you bought it for, you still need to lodge a return to ensure that the ATO has full knowledge that no tax may be payable so it doesn’t devote resources to checking on you. Failure to lodge a return will lead to an A$850 fine per year not lodged, per person that is required to lodge (all persons registered on the title must lodge).
The new withholding tax will create a slight administrative burden on sellers. Although it only applies to owners that live out of Australia, the way the system is being administered means that all Australian property owners that sell for above the A$2 million threshold will need a “Clearance Certificate,” to confirm that they do not require the withholding tax to be retained from the purchase funds. For any owner living in Australia this will be fairly automatic as long as he or she can confirm their residency in Australia.
If a seller does not have a Clearance Certificate, then buyers of property worth more than A$2 million will need to hold back funds from the settlement. The certificate should be a simple online application and is estimated to take between 10 and 14 days to arrange. For overseas owners selling their property, the withholding tax will be kept and remitted to the ATO. There will be some urgency to lodge your tax return to confirm how much the actual tax may be and to get a refund, if applicable. Although the A$2 million threshold seems high, the recent surge in Sydney property prices means that this change may have a larger impact there than in other Australian cities.
From The Finder, August 2016
Steve Douglas is the Co-Founder and Managing Director of Australasian Taxation Services (ATS). ATS provides specialist taxation services for anyone looking to invest in Australian property, including Australian expatriates living overseas. Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.