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Jul 16, 2018

ATO and settlement

In the past year there have been two changes to Commonwealth law that sometimes inserts the Australian Tax Office (ATO) into the settlement process, which until now, has been very rare.

The first is the Foreign Residents Capital Gains Tax Withholding (FRCGTW) payment requirement which applies to the buyers of properties being sold by foreign residents for $750,000 or more, in which case the purchasers are required to withhold 12.5% of the sale price and remit it to the ATO instead of paying it to the seller at settlement.

This brings a considerable administration burden to buyers to actually ascertain the residential tax status of the sellers as there are onerous penalties on buyers (and their conveyancers) who do not comply with this requirement. 

What is required is for exempt (ie Australian resident) sellers of properties over the $750,000 FRCGTW threshold to supply the buyers with a clearance certificate which exempts the buyers from diverting the 12.5% to the ATO.

Without a clearance certificate, the buyer must remit 12.5% of the purchase price to the ATO instead of to the seller, irrespective of whether the seller is an Australian resident. It is only the supply of a clearance certificate that exempts the buyer, and enables the seller to receive their full sale proceeds.

Fortunately, clearance certificates are reasonably simple to obtain from the ATO’s website, but this is a very necessary step for all sellers of properties over $750,000, if they want to avoid the complexity of getting their money back from the ATO, because the buyers will have NO CHOICE but to pay the 12.5% to the ATO if the sellers do not provide clearance certificates for all sellers and selling entities.

The second change involves buyers of new houses and in some cases, newly created lots of residential vacant land, who must pay the GST component of the purchase price direct to the ATO, instead of the sellers. This is usually around 10% of the purchase price.

Again, this requirement adds an administrative complexity and the threat of onerous penalties to buyers in that they must submit advice to the ATO of, in the first case, a contract having been entered into for the purchase of a new home, and secondly that settlement has taken place and the funds withheld from the sellers have been paid over to the ATO.

There are two relatively simple forms on the ATO website that must be completed, which also provide the means by which the payment is to be made.

The important message in this for both buyers and sellers are that these changes are the law, that they can’t ignore them, that we as your settlement agents can’t ignore them, and that if we ask you to do something in line with these laws, there’s no point in complaining to us or abusing my staff. Just do it!

Please note, none of the above should be construed as legal, accounting or tax advice. Buyers and sellers of properties selling for $750,000 or more, or of new residential properties, including vacant land, should seek advice from legal, accounting or tax professionals before proceeding.

This article was published in similar form in The Kalgoorlie Miner newspaper on Saturday 14 July 2018

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