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Avoid having 10% withheld from your property sale price from 1 July 2016

By Anthony Wardley

What are the rules? 

New rules take effect for taxable Australian real real property contracts signed from 1 July 2016 with a sale value of $2 million and over. The aim of these rules is to collect tax from foreign resident vendors at the time the property sale takes place, however these rules will still effect transactions that take place wholly between Australian residents.


Under these new rules, property purchasers will be required to withhold 10% of the purchase price of a property at the time of settlement unless a clearance certificate has been obtained from the Australian Taxation Office. This clearance certificate acts to show the vendor is an Australian Resident and therefore not subject to the withholding rules. The rules deem the vendor to be a non resident until a clearance certificate has been obtained showing the vendor is a resident. As a result these rules will effect all property transactions where a property is sold for $2 million and over


How do I obtain a certificate?

The clearance certificate can be applied for using the form found here and the certificate is valid for 12 months. It is possible to apply for the certificate prior to listing the property for sale. An online version of the form should be available in late June 2016 and the ATO recommend this online version be used once it is available.


Following discussions with various solicitors and conveyancers, we understand this certificate will be obtained as part of the settlement procedure however we recommend you clarify this early in the settlement period to ensure delays are minimised.


What if the property value is less than $2 million?

For property transactions under $2 million, purchasers must still obtain a declaration from the vendor that they are an Australian resident, however a formal tax clearance certificate is not required. A declaration is valid for 6 months from the date it is signed.


What happens if I don’t withhold when I should? 

A purchaser that fails to withhold an amount from the purchase price is liable for a penalty equal to the amount they failed to withhold.


There are some exceptions and other cases in which these rules may apply, so if you think they may apply to your circumstances please do not hesitate to contact A Squared Advisers to discuss the application to your personal circumstances.