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Selling A Property Worth More than $750k: Prove You're a Resident

August 2017


If you're planning to sell a property with a sales value above $750,000, you'll now be expected to prove Australian residency to avoid having to be withheld 12.5% of the sale price by the purchaser.

Anyone selling a property needs to prove that they are a resident of Australia for tax purposes unless they are happy for the purchaser to withhold a 12.5% withholding tax.

From 1 July 2017, every individual selling a property with a sale value of $750,000 or more is affected.

While these rules have been in place since 1 July 2016, on 1 July 2017 the threshold for properties reduced from $2 million to $750,000 and the withholding tax level increased from 10% to 12.5%.

Properties under $750,000 are excluded from the rules. This exclusion can apply to residential dwellings, commercial premises, vacant land, strata title units, easements and leasehold interests as long as they have a market value of less than $750,000. If the parties are dealing at arm's length, the actual purchase price is assumed to be the market value unless the purchase price is artificially contrived.

When and to whom do the withholding rules apply?

The withholding rules are only intended to apply when one or more of the vendors are non-residents. However, the rules are more complicated than this and the way they apply depends on whether the asset being purchased is taxable Australian real property or a company title interest relating to real property in Australia.

Tax Commissioner discretion

If required, the Tax Commissioner has the power to vary the amount that is payable under these rules, including varying the amounts to nil. Either a vendor or purchaser may apply to the Commissioner to vary the amount to be paid to the ATO. This might be appropriate in cases where: 

  • The foreign resident will not make a capital gain as a result of the transaction (e.g., they will make a capital loss on the sale of the asset)
  • The foreign resident will not have a tax liability for that income year (e.g., where they have carried forward capital losses or tax losses etc.,); or
  • Where there are multiple vendors, but they are not all foreign residents.

If the Commissioner agrees to vary the amount, it is only effective if it is provided to the purchaser.

Why do you have to prove your residency status?

The intent of the foreign resident CGT withholding rules is to ensure that tax is collected on the sale of taxable Australian property by foreign residents. But the mechanism for collecting the tax affects everyone regardless of their residency status.

To prove you are a resident, you can apply to the Tax Commissioner for a clearance certificate, which will remain valid for 12 months.

Please contact us on 02 9957 4033 if you need assistance navigating the foreign resident CGT withholding rules or are uncertain about how the rules are likely to apply to a transaction.

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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