As of 1 July, new legislation will come into effect under The Tax and Superannuation Laws Amendment Bill 2015 which require buyers of residential properties worth more than $2 million to withhold 10% of the purchase price when the vendor is a foreign resident for tax purposes.
Sellers will also now required to obtain a clearance certificate to prove they are an Australian resident for tax purposes.
Manda Trautwein, director at accountancy firm William Buck, is supportive of the changes, but said they will likely delay the process for those buying and selling luxury properties.
“The legislative changes will put Australian and foreign residents on a level playing field, but will have their challenges. The tax compliance burden for resident taxpayers will significantly increase and conveyancers will need to ensure their clients are abiding by the new laws to limit property settlement delays,” Trautwein said.
“The Federal government is expected to significantly benefit from the new changes as there should be less tax revenue leakage,” she said.
Trautwein said the changes have been instituted to reduce the difficulties faced by the government in taxing the capital gains on property owned by foreign resident taxpayers.
Buyers who don’t withhold the 10% of the sale price could be liable to pay a penalty which is up to the full 10% of the purchase price plus interest, while vendors will likely be impacted in their ability to buy further properties or pay down a mortgage.
“From a seller’s perspective, they could have less funds available which might otherwise have been available to discharge the mortgage on the property and/or fund a new property purchase. They could end up with only 90 per cent of the proceeds on settlement unless they are able to obtain a clearance certificate from the tax office. If there are data irregularities, delays of between 14 to 28 days are expected to obtain a clearance certificate,” Trautwein said.
