With property prices still increasing across most Melbourne suburbs and the steady number of foreign purchasers entering the property market, new legislation has been passed that will impact a number of future property transactions. Here is a succinct summary of the changes from Cheltenham accounting firm, Vawdrey Axton Turner:
“Buyers to withhold tax for ATO when buying certain properties
The amendments will generally apply where the contract to purchase an applicable asset is signed on or after 1 July 2016.
Where the land, or the interest in the land, is worth $2 million or more, the new law requires the purchaser to withhold 10% of the purchase price and send it to the ATO unless the vendor has obtained a ‘clearance certificate’ from the ATO and provided it to the purchaser prior to settlement.
This obligation arises regardless of whether the vendor is a foreign resident or not.
On 1 August 2016, Harvey enters into a contract to purchase a residential property in an affluent Sydney suburb for $2.5 million, with settlement proposed to occur on 1 October 2016. He does not know whether the vendor is a foreign resident.
Despite many requests from Harvey’s lawyer, the vendor refuses to obtain a clearance certificate from the ATO to give to Harvey.
As Harvey is acquiring Australian land with a market value greater than $2 million and he has not received a clearance certificate from the vendor by the time settlement occurs, Harvey will be required to withhold and pay to the ATO $250,000, whether or not the vendor is an Australian resident.”