ATO clawing in capital gains tax with new rules for $2 million-plus properties

The property industry will come under greater scrutiny from the ATO this year with new rules placing sales transactions above $2 million in its sights.   

From next month, buyers of a property worth more than $2 million – residential or commercial – will have to withhold 10 per cent of the price. The buyer will be required to give this sum to the ATO unless they get a special tax clearance certificate from the vendor.

The move is designed to crack down on foreign property owners who sell Australian homes without paying capital gains tax, with the ATO transferring some of the responsibility to purchasers.

The ATO explains: “All Australian resident vendors of $2 million-plus properties will be classified as overseas investors unless they get a special tax clearance to confirm a 10 per cent withholding amount does not need to be withheld from the transaction.

“The vendor needs to provide a clearance certificate to the purchaser by settlement, or the purchaser will be required to withhold 10 per cent of the sales price and pay this to the ATO.”

Knight Frank Canberra’s Associate director of institutional sales, Nic Purdue, says the change is likely to catch many by surprise in the commercial sector where the impact will be felt most due to the size of transactions.

“There are a few residential properties that trade above $2 million in Canberra but locally this will impact on sales in the commercial world whether it’s an individual or a corporation selling a property.”

Agencies, including Knight Frank Canberra, are busy sending out reminders to clients about the July 1 change, Purdue says.

“The agent is the first part of a sales process so as part of our due diligence, we would recommend to our vendor that they get that certificate as early possible,” Purdue says.

“But it would also be good practice for the vendor’s solicitor and accountant to remind them as well.”

Purdue does not believe the change will discourage property sales or foreign investment.

ATO guidelines:

• Clearance certificates are valid for 12 months from issue.
• The form is available on the ATO website.
• There is no fee for clearance certificate applications.
• Penalties and interest apply where vendors make false declarations to the ATO, or where the purchaser fails to withhold and remit 10 per cent of the purchase price when they are required to.