Buying or Selling Property? The 1 July Tax Changes

New rules to prevent foreign residents avoiding tax when they sell Australian property will affect everyone buying or selling property with a market value of $2 million or more from 1 July 2016.  Many transactions involving shares in a company or units in a trust will also be caught. From 1 July, a 10% withholding tax will apply when foreign residents sell certain types of Australian property.  However, if you are selling Australian property, the new rules assume you are a non-resident unless you have a clearance certificate from the ATO.  Without this clearance certificate, the purchaser can withhold 10% of the purchase price and pay this to the ATO.  For purchasers, if you do not withhold the tax and do not have a clearance certificate, you are liable for the tax (on a $2 million property, that’s $200,000). Until everyone gets used to this new system there are likely to be quite a few issues where property contracts that don’t mention the withholding tax, no clearance certificate is provided, and no tax is withheld on settlement. The good news is that the withholding tax does not apply to real property that has a market value of less than $2 million. Where there is more than one purchaser, the market values of all of the interests to be acquired need to be aggregated to determine whether the $2 million threshold applies. For example, if mum and dad are buying a property as joint tenants with a total market value of $3 million, the rules could be triggered even though their individual interest in the property is only worth $1.5 million. The $2 million exclusion does not apply to indirect interests in Australian real property such as shares in a company or units in a trust that hold real property in Australia.  However, the exclusion can apply to company title arrangements, where someone holds shares in a company which provides them with a right to occupy part or all of the property that is owned by the company.  This ensures that company title arrangements are treated in the same way as properties held under strata title.   Should you require any information please contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment. The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it.  It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.