If so, 12.5% of the purchase price must be withheld from the proceeds and paid to the ATO, where the vendor is a foreign resident. The vendor is assumed to be foreign resident unless a clearance certificate is obtained by them from the ATO before settlement.
The purchaser is liable for the withholding if the vendor has not provided a clearance certificate, regardless of whether they held back 12.5% of the purchase price or paid in full.
This withholding assists the collection of foreign residents' Australian capital gains tax. It imposes an obligation on purchasers to withhold 12.5% of the purchase price and pay it to the ATO, where a vendor enters into a contract on or after 1 July 2017 and disposes of certain asset types (or receives a lease premium for the grant of a lease over Australian real property).
Australian resident vendors can avoid the 12.5% withholding by providing one of the following to the purchaser prior to settlement:
o for Australian real property, a clearance certificate obtained from the ATO
o for other asset types, a vendor declaration they are not a foreign resident.
Foreign resident vendors may apply for a variation of the withholding rate or make a declaration that a membership interest is not an indirect Australian real property interest and therefore not subject to withholding.
Purchasers must pay the amount withheld at settlement to the Commissioner of Taxation, and penalties may apply.
If you are buying or selling a property, and you believe the market value of the property is $750,000 or higher, please discuss this with your solicitor or conveyancer and ensure that a clearance certificate has been applied for (if the vendor is an Australian resident) before settlement to avoid this withholding, or to allow for it in the contract.
For more information:
- Contact us on (02) 6766 4716.
- Speak with your solicitor or conveyancer.