Media Release – 6th June 2017 COULD LOCAL BUYERS GET CAUGHT PAYING A FOREIGN INVESTOR’S TAX BILL? Government initiatives aimed at restricting foreign ownership may give the impression of helping affordability for local buyers, however there are potentially hidden risks, according to First National Real Estate Balwyn North principal, Joseph Yap. Previously, legislation required buyers of properties worth more than $2 million to withhold 10 per cent of the purchase price and send it to the Australian Tax Office (ATO), if the vendor was a foreign resident for tax purposes. Now, any property worth $750,000 or more is affected and the Withholding Tax will increase to 12.5 per cent from 1 July 2017. However, the previous threshold and rate will apply for any contracts that are entered into before 1 July 2017, even if they are not due to settle until after 1 July 2017. ‘Naturally we support the intent of the changes but it is essential that lawyers and conveyancers proactively ensure their clients abide by the new laws’ Joseph points out. ‘If buyers don’t retain the 12.5 per cent withholding tax, they could find themselves liable for a penalty from 1 July, which could be the full 12.5 per cent of the purchase price as well as interest. Nobody would want that.’ To avoid potential settlement delays and complications, owners who are selling properties worth more than $750,000 should obtain a clearance certificate from the ATO to prove they’re an Australian resident for tax purposes. However, the lift in the number of properties affected by the changes could increase the length of time it takes to obtain a certificate. ‘Now that many more properties fall into the Government’s tax net, there’s great concern about the potential for extended delays acquiring clearance certificates, which used to take anywhere from a few days to four weeks’ Joseph comments. ‘Vendors would be well advised to apply for the certificate the moment they appoint a conveyancer and real estate agent. This will assure that the moment a sale price is agreed with a buyer, there will be no impediment to completing a contract of sale and the buyer will have confidence they are not placed at risk.’ Other significant changes affecting property brought down by the Budget are: •Foreign investors will no longer be able to access the Capital Gains Tax exemption (CGT) on their main residence in Australia, with the new rule commencing from budget night but grandfathered on existing properties until June 30, 2019. •Developers will no longer be able to sell more than 50 per cent of apartments off the plan to foreign investors (when the development has more than 50 units) •Foreign residential property investors who leave properties unoccupied, or not genuinely available on the rental market, for at least six months per annum, will face an annual levy of at least $5,000 •Any failed off the plan purchases by foreigners will now once again be considered new, thereby overcoming previous limitations ‘The threshold for foreign resident capital gains tax withholding will soon stand at a level that is impractically low’ according to Joseph. ‘Seventy six per cent of foreign investors buy in New South Wales or Victoria and spend $1.6 million on average. The new threshold will unnecessarily expose a large number of property transactions to excessive bureaucracy.’
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Wednesday 17 Apr 2019