Parliament has passed legislation that changes the current tax law from 1 July 2016 to impose withholding obligations on the purchases of Australian real property and real assets with a market value of two million dollars or more.
The new law will mean the purchaser must deduct 10% from the purchase price and pay that amount to the ATO unless the seller presents a tax ‘clearance certificate’.
The clearance certificate confirms that withholding tax is not applicable to the transaction. The funds withheld can be accessed by the vendor, claiming a credit in their tax return where capital gains tax is assessed.
These changes will affect a large portion of property purchases in Australia, particularly those in metro areas. The tax withholding amendments will impose on transactions that are of an interest to both Australian and foreign buyers.
So what does this mean for you? For Australian residents it can increase your risk of a tax audit and can create hazards for property sellers who:
But are these changes necessarily a bad thing? No. This is another way for the ATO for recover tax legitimately owed to them.
For more information on these changes or if you have any questions give the AFS team a call on 03 5443 0344.