Selling a property, even your house – taxes may apply
The ATO has introduced changes for people selling property that may impact you if you sell a property that you have lived in, an investment property or a property development that you built to sell.
Selling your house (Principal place of residence)
If you’re selling your property, and it has a sale price of $750,000 or more, the Australian Taxation Office (ATO) now requires that you obtain a ‘Foreign resident capital gains withholding clearance certificate’ … what a mouthful! Put simply, it is a document that states that you are an Australian Resident and no tax is required to be deducted from the sale. This applies to everyone selling in the price bracket ($750,00 and over), even if you have lived in the property all your life and never rented it out.
If you don’t get one, the purchaser is required to deduct 12.5% of the purchase price from the settlement and send it to the ATO, effectively reducing your settlement price by upwards of $56,000!
Why have the ATO put this in place? To make sure that when a non-resident sells their property in Australia they pay the appropriate amount of capital gains tax on the sale. Once the money has left Australia, it is difficult (and expensive) for the ATO to recover any tax liabilities.
What you need to do:
If you’re a vendor affected by this, your conveyancer will advise you that you need to obtain a certificate well before settlement. The application can be completed here: https://www.ato.gov.au/FRWT_Certificate.aspx
The certificate lasts for 12 months so there are no problems if settlement is delayed or if it falls through and someone else purchases the property.
Note: While the certificate is mandatory for properties over $750,000 a client of mine was recently requested to provide one for a sale much less than this. Rather than argue the case, (potentially delaying or jeopardising the settlement) a certificate was requested and quickly granted by the ATO.
Selling an investment property
The same rules apply to selling an investment property. If the sale price is $750,000 or more you will be required to obtain a certificate.
Selling a property that you have developed
If you build and develop a property to sell you may be liable for GST on the sale proceeds. For more information see our article ‘What is the tax difference between a property developer and an investor?'.
Some property developers don’t do the right thing and pay appropriate amount of GST to the ATO despite claiming it back from the ATO when they were developing the property.
To stop this practice, the ATO now requires that the person who purchases the property is required to remit to the ATO either:
- 1/11th of the contract price
- 7% of the contract price if the margin scheme applies (this must be detailed on the contract for sale)
(Again, the conveyancer will take care of this for you.)
You (as the developer) will then be able to claim this amount against your next BAS return and receive a refund if the amount has been overpaid.
To sum up …
In the 3 scenarios above, nothing changes for the purchaser of a property, but if you are selling a property there is now potentially another step in the process you will need to do to meet the ATO’s requirements. Your conveyancer should be across these changes, but as a vendor it’s handy to be aware too. That way there’ll be no nasty surprises come settlement day.
If you have any questions about this, please contact us to discuss your particular situation.