In just a few weeks, the ATO will implement a strange new tax rule to all Australian residents buying or selling property which has a market value of $2 million or more.
The new rule, which will be put in place in order to prove the seller is an Australian resident, requires sellers of residential and commercial properties for more than $2 million to obtain and present a buyer with a clearance certificate by the settlement date in order to be paid the full sale price.
Without a certificate, the buyer will be required to withhold 10% of the property sale price and pay this directly to the ATO.
Penalties apply where sellers make false or misleading declarations to the ATO, or where the buyer fails to withhold when they should.
“The new rules have been introduced to ensure foreign residents meet their capital gains tax liabilities,” the ATO said.
“Amounts withheld will be credited against their final income tax liability assessed on foreign residents’ income tax returns.”
The new rule comes off the back of new withholding rules on sales of property by foreign residents in order to crackdown on the level of foreign property investment in Australia.
How to apply for a clearance certificate
Clearance certificate application forms are already available to download through the ATO’s website, and it is designed to be a straightforward process that should not take much time to complete for most sellers.
“Sellers can complete and lodge the form themselves, or it can be completed and lodged on their behalf by a third party, such as their solicitor or accountant,” Assistant Commissioner Malcolm Allen said.
“There is no ATO fee for clearance certificate applications and we encourage all Australian residents who are looking to sell property with a value of $2 million or more to apply for a clearance certificate as early as possible in the sale process.”
An online version of the form will be available from 27 June 2016. Where an application is submitted online, most certificates will be issued electronically within a few days. Paper applications may take up to 2-4 weeks to process.
“There may be some delays in cases where applicants have incomplete tax records, for example where tax returns have not lodged for the last two years. We will follow-up where we see evidence of poor tax behaviour, just as the Australian community would rightly expect of us,” Allen said.
A clearance certificate is valid for 12 months from issue, and must be valid at the time it is made available to the buyer.