New capital gains tax hits Sydney vendors hardest

16-September-2017 Commercial Disputes,General,Property By Mel Collins

A new rate of Capital Gains Tax, introduced on 1 July, is having a major impact on most Sydney-based real estate vendors.

Prior to 1 July 2017, a vendor who was an Australian resident and selling real estate valued at over $2 million, was required to obtain a Clearance Certificate from the Australian Taxation Office to avoid the purchaser withholding 10 per cent of the purchase price (the Capital Gains Withholding Tax).

If the vendor was a foreign resident, or did not provide a Clearance Certificate, the purchaser had to pay the amount withheld at settlement to the Commissioner of Taxation. The foreign resident vendor would then be required to lodge a tax return at the end of the financial year declaring his or her Australian assessable income and any capital gains earned from the sale of the property.

In the 2017 Federal Budget, the following changes to the Foreign Resident Capital Gains Withholding process were announced:

  1. The threshold, which was previously $2 million, has been reduced to $750,000; and
  2. The Foreign Resident Capital Gains Withholding tax rate has been increased from 10 per cent to 12.5 per cent.

These changes mean that any sale of real estate property in Australia exceeding a sale price of $750,000 will require an Australian vendor to obtain a Clearance Certificate or be subject to the Capital Gains Withholding tax rate of 12.5 per cent, which purchasers will be obliged to pay directly to the Commissioner of Taxation unless appropriate documentation evidencing a variation has been submitted to them prior to settlement.

As a vendor, it is important you obtain a Clearance Certificate at the time you are considering listing your property for sale and attach the certificate to the contract. These certificates remain valid for 12 months.

The latest point in a sale transaction in which a Clearance Certificate may be provided to a purchaser to avoid the withholding tax is two weeks prior to settlement.

There are exceptions and exclusions which may apply to certain transactions, so it is wise to seek legal advice about your particular circumstances before entering into a real estate sales contract.

If you are considering entering into a contract for the sale of your property, please contact our solicitors at Streeterlaw for tailored advice to suit your circumstances. Please call 8197 0105 or you can email advice@streeterlaw.com.au

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