From 1 July 2016 a purchaser of Australian land or an interest in Australian land valued at $2,000,000 or more will be required to withhold 10% of the purchase price and pay this directly to the ATO. Given the price of property in Sydney and Melbourne this is likely to impact a great many sales.

Unless an exception applies, where parties enter into a contract on or after 1 July 2016 to acquire a taxable Australian property (which includes real property, a lease, a mining, quarrying or prospecting right in relation to resources situated in Australia) the purchaser will be required to withhold 10% of the purchase price and remit that to the ATO before settlement, unless the vendor serves on the purchaser:

• a clearance certificate – a clearance certificate confirms that the withholding tax is not applicable to the transaction; or
• a statement from the ATO which varies the amount payable.

The stated objective of the new rules is to assist the ATO in collecting Australian tax owed by foreign residents on any profits earned from the sale of a taxable Australian property.

As the new rules impose an obligation on the purchaser to withhold 10% of the purchase price and pay this directly to the ATO, purchasers must be careful of the new rules when purchasing a property priced over $2,000,000.

We recommend that vendors seeking to sell their property for over $2,000,000 obtain a clearance certificate or a variation from the ATO early to avoid a purchaser withholding 10% from the purchase price well in advance of the intended sale.

A clearance certificate is valid for 12 months from the date it is issued, so it may be used for multiple transactions within the 12 month period.

Given there is a rush expected on clearance certificates it would be prudent to apply early.

For more information please contact ERA Legal.