New clearance certificate regime to affect foreign property investors

The Australian Taxation Office (ATO) is strengthening the Capital Gains Tax legislation to capture foreigners who sell real estate and make a gain.

New legislation that comes into effect from 1 July 2016 will require purchasers of property with a market value of over 2 million dollars that has been disposed of by foreigners to withhold 10% of the purchase price and pay that amount to the ATO.

The legislation will apply to Australian property, being:

  • Real property in Australia – land, buildings, residential and commercial property;
  • Lease premiums paid for the grant of a lease over real property in Australia;
  • Mining, quarrying or prospecting rights;
  • Interests in Australian entities whose majority assets consist of the above property or interests; and
  • Options or rights to acquire the above property or interest.

It does not apply to:

  • Property transactions with a market value under $2 million;
  • Transactions listed on an approved stock exchange; and
  • Purchases where the foreign resident vendor is under external administration or in bankruptcy.

Where a clearance certificate is provided by the vendor, the purchaser is not required to withhold an amount from the purchase price. Applications for this certificate can be made online.

This new law places further obligations on purchasers when buying real estate as their solicitor will need to check that the Vendor is not a foreign resident or they will risk having the ATO pursue them for a 10% holding tax.

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