Australian home buyers are at risk of losing money on settlement, because of the new national property withholding tax regime that came into effect last July 1.
The new property tax can have an impact on sellers, buyers, and advisors who have real estate transactions valued at $2 million or higher.
Under the new legislation, vendors required to obtain a residency clearance certificate from the Australian Taxation Office to avoid a compulsory 10% withholding tax.
According to Murray Howlett of Pilot Partners, the application process for the clearance certificate leaves home buyers vulnerable to invalid certificates and eventually, a 10% tax on the sale price.
“While the law clearly states that a certificate must cover the date the contract is entered into, the ATO’s online system will automatically issue a certificate dated from the day of processing. There is, in fact, no ability to request an earlier date in the electronic system,” said Howlett.
“This means that certificates issued for sellers whose land is already under contract will not provide any protection from the withholding tax.”
Hence, Howlett emphasised the importance of understanding the implications of this tax.
“I’m concerned that most home buyers think this tax applies to non-residents only but with this tax all Australians are deemed to be a foreigner until the ATO declares that they’re not,” he said.
He encouraged sellers to apply for the clearance certificate as soon as possible and to seek the advice of a professional.
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