Non resident property sellers face new 12.5% tax on sale of $750k or more

I was just reading an article in the AFR with the above title. Ive pasted the relevant part below.

I'm a non resident of oz for tax purposes and about to list my I.P which is worth between 770k to 820k.

Does this new tax rule apply to me? Do I only pay this withholding tax. Surely I dont have to pay CGT on top of this??

thanks
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Property sellers face new 12.5 per cent tax on $750,000 or more deals with non-residents

''Sellers of property worth $750,000 or more could face a 12.5 per cent tax on the proceeds under new ATO rules introduced to stop foreign property owners avoiding capital gains tax.

Clearance certificate

Australian residents selling property will from July 1 need to provide a "clearance certificate" issued by the Australian Taxation Office to the purchaser on settlement of the sale to avoid the 12.5 per cent withholding tax.

Foreign resident sellers will have 12.5 per cent withheld and remitted to tax authorities.

 

Yes it sounds like it will apply to your situation, but it is not a new or extra tax is just means the vendor will take some of the sale price and remit it to the ATO. You will still pay the same amount of CGT overall.

 

I'm relieved to read that Terry thanks. I did ask my accountant a few months ago and she estimated around 100k CGT but didnt give specifics of how this was calculated and thus unsure if it included withholding tax.

I think I had better pick up the phone tomorrow to check.

thanks

 

I'm still a bit confused about the rules to be honest.

Ive just read:
The 'subtle one-line change' in 2017 budget affecting thousands of home sellers

The most salient point that presents itself to me is ''
“It’s basically turning conveyancers and lawyers into tax collectors. That’s not what the conveyancing process should be about.”

He said he wouldn’t be surprised to see more buyers requesting to see the clearance certificate before signing a contract to ensure no delays would occur around settlement time.''

If Im selling my I.P by auction is the above opinion implying that I should have a clearance certificate before the hammer falls because obviously there is no cooling off period in an auction.

If I dont give a clearance certificate does it mean that the purchaser is liable for the tax? I will have to read the current draft sales contract to see if there is any mention of this issue.

 

Here is another interesting point:


“If you fail to obtain a Clearance Certificate, even if you are an Australian resident, you will be treated as a foreign resident. It’s really a situation of ‘foreign’ until proven otherwise,” Mrs Taranto said.

The budget papers describe the tax change as a plan for “improving the integrity of capital gains tax rules for foreign investors” and to reduce the avoidance of capital gains tax by foreign buyers.''

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I'm tired of this revenue raising nanny state government.

 

I don't practice conveyancing law so have noexpeirence in getting these certificates, but imagine they would only take a few days to obtain. Best to get legal advice from your covneyacning lawyer.

As you are a non-resident they will probably have to withhold an amount anyway.

 

ATO says it can take 20 days.
This has applied for $2m properties for the past year.

Clients have received in 24 hours but can't imagine that this will happen with a massive increase in volume.

It's an online form that you complete and if you don't then the buyer must draw a bank cheque for 12.5% of the purchase price to the Deputy Commissioner of Taxation and remit to the ATO, just the same way we do with transfer duty now.

QLD Contracts have been updated to reflect same:

for clause 2.5(1), the Seller irrevocably directs the Buyer to draw a bank cheque for the CGT Withholding Amount in
favour of the Deputy Commissioner of Taxation or, if the Buyer’s Solicitor requests, the Buyer’s Solicitor’s Trust
Account;
(d) the Buyer must lodge a Foreign Resident Capital Gains Withholding Purchaser Notification Form with the Australian
Taxation Office for each person comprising the Buyer and give copies to the Seller with the payment reference
numbers (PRN) on or before settlement;

the Seller must return the bank cheque in paragraph (c) to the Buyer’s Solicitor (or if there is no Buyer’s Solicitor, the
Buyer) at settlement; and (f) the Buyer must pay the CGT Withholding Amount to the Commissioner in accordance with s14-200 of the Withholding Law and give the Seller evidence that it has done so within 2 Business Days of settlement occurring.

 

as the world economy slows down once again the grab for money will continue

 

Remember folks that a clearance certifcate bypasses the need to withhold. Its not a tax estimate or anything like it. Only a resident taxpayer can get one of those IF they dont have tax return arrears. In such instances they would just report the capital gain as they would have done before. For resident taxpayers with poor compliance history it may be refused.

It can be applied for 2 years in advance. Strangely it doesnt require the individuals to have sold a thing or even nominate what is being sold. Its like a pre-sale credit check to see if you have a TFN

I wonder what happens if two old retirees apply ...That raises my second question. The certificate is made by each owner. How do couples do this ?

 

Im still waiting to hear from my accountant to see if the 100k CGT estimate liability includes the withholding tax.

If we get that certificate and give it to the purchaser at settlement. Do I then just pay the CGT in next years tax return (which presumably includes some withholding tax bc Im a non resident of oz for taxation purposes)

thanks

 

Each individual/ entity listed on the title needs to provide a certificate at settlement.

 

I suspected that.

I encountered someone today who is a non-resident (PR) with partial title. The withholding and NSW land tax surcharge pose a issue.

I wonder what happens when ATO identify a non-resident selling property that was prohibited by the FIRB ?

 

You cant request a clearance certificate (CC) if you are a non-resident taxpayer.

1. Only a resident taxpayer (in good standing with lodgements) can get a CC. A CC means no tax is withheld even if tax is later payable.
2. Otherwise without a CC a resident taxpayer is treated like a non-resident and subject to WHT
3. The taxpayer can apply for variation of the expected withholding. I havent seen this but expect its a self assessed estimate of the actual CGT liability IF it is less than the tax withholding. The lesser sum is then withheld.

The variation is when you "drop your pants"and declare all the details and self-assess the final tax due. It can be varied to nil if thats the tax due. This form may require tax agent assistance to avoid errors. Errors would result in refused variation.

Foreign resident capital gains withholding rate variation application instructions

Variations by non-residents relating to former homes may need tax advice. Its a hot audit focus.

• We are closely reviewing applications by foreign resident taxpayers who have requested variations of the withholding amount to ‘Nil’ on the basis that they are disposing of their main residence. These applications will be subject to increased scrutiny, particularly where the applicant has never been an Australian resident for tax purposes.

 

My accountant said the following advice below. He is implying that the 12.5% will be taken out of my settlement funds by the buyer. I dont want $100k or whatever to be taken out of my funds where I lose access to this cash for 12 months. I thought it was suggested above that if I get the clearance certificate as a non resident then the buyer doesnt withhold any of my funds????
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''The 12.5% with-holding is a separate thing to the capital gains tax payable, so the CGT estimate given to you would be unchanged. The way the system works is the buyer with-holds 12.5% from sale price & remits to the ATO. The seller can then claim this credit by lodging their Australian tax return.

Please see below extract from ATO website, (which has yet to be updated for Budget changes ie market value $750,000 & 12.5% rather than 10%). What this would mean for you is that the buyer would with-hold & remit 12.5% of the purchase price to the ATO, so you would receive less cash on settlement, & you would get a credit for the amount remitted when you lodge your tax return.



· Foreign resident capital gains withholding payments
The foreign resident capital gains withholding regime can apply in the 2016 income year to foreign residents with a 2016 income tax year ending after 30 June 2016, in relation to contracts entered into on or after 1 July 2016.

A 10 percent non-final withholding obligation will apply to the disposal of:

o taxable Australian real property with a market value of more than $2 million

o an indirect Australian real property interest

o an option or right to acquire such property or interest.

Where the seller of these Australian assets is a foreign resident, the buyer must pay 10 per cent of the purchase price to the ATO as a foreign resident capital gains withholding payment.

The foreign resident vendor can claim a credit for the foreign resident capital gains withholding payment by lodging a tax return for the relevant year.

 

Sounds correct to me.

 

Yeah. If you dont to withold and are resident get the CC. If not resident then vary

 

These are the old rules....Its now a higher tax rate and a lower property value.

 

This withholding issue reinforces the need to ensure you have a accurate calculation of the final tax liability at the time of the contract to sell if you are a non-resident taxpayer. You want to ensure the actual withholding is no more than the expected tax to avoid a interest free loan to the ATO until your tax return is lodged to adjust to the actual tax.

There are a enormous complexities to non-resident CGT events and many issues can render a error in calculations.
- Former main residence exemption period/s
- Absence from a main residence rule (perhaps)
- s118-192
- Date you became non-resident
- 8 May 2012 and if you have a valuation at that time
- Co-ownership
- Costbase adjustments incl QS deductions and non-deductible expenses & improvts

Will this add to costs ? Most likely yes.

 

My house sold at auction. I know that the CC is just a 'tfn checker' and I know that Im a non resident of oz for tax purposes. Thus, its not mandatory for me to fill out the CC. Is that correct? Its only necessary for residents of oz to fill out in order to not have to pay the Withholding tax.

The onus is on the purchaser to fill out the online form prior to settlement advising of his and my details in order to print off the payment form to take to the post office.

I just want to be sure about the CC though

thanks

 

I have since found the info on the ATO website:

The clearance certificate application form is used by Australian resident vendors. If you are a foreign resident, do not lodge an application – if you are entitled to a variation to your CGT liability, lodge a variation request.