Property & Planning Law

Vendors and Purchasers – Are you familiar with the new Withholding Tax Regime for Property Transactions?

Purchasers of freehold property in Australia may be required to withhold 10% of the purchase price which would otherwise be payable directly to the Vendor and pay this withholding amount to the Australian Taxation Office under a new withholding regime. 

The new regime will commence on and from 1 July 2016.  

When the Withholding Regime Applies

Generally, the withholding regime will apply if all of the following tests are satisfied:

  • Contracts of Sale have been entered into on or after 1 July 2016; 
  • A foreign resident disposes of Australian freehold property of any description (ie: residential, industrial, commercial etc); and
  • The property has a market value of $2 million or above

      (collectively the Eligible Property)

What this means for Vendors

All vendors who are Australian residents and who are selling an Eligible Property will need to apply for a clearance certificate via the Australian Taxation Office (ATO) website. 

The ATO has indicated that clearance certificates may take up to 14 days to be provided. 

As a vendor may apply for a clearance certificate at any time, we strongly suggest that such certificates are applied for by vendors as soon as reasonably practical after it contemplates selling the Eligible Property. 

We also suggest that such certificates form part of the Section 32 statement so as to avoid the possibility of a purchaser arguing that the clearance certificate was not provided and therefore requiring the purchaser to withhold 10% from the purchase price.

What this means for Purchasers

If an Australian resident vendor does not provide a clearance certificate to a purchaser of an Eligible Property, the purchaser will be required to withhold 10% of the purchase price and to pay this amount directly to the ATO. 

If a vendor is not entitled to a clearance certificate

If a vendor of an Eligible Property is not entitled to a clearance certificate, but believes a withholding of 10% of the purchase price is not appropriate, the vendor can request a determination from the ATO.

In this respect, the ATO may conclude that a withholding percentage of less than 10% is appropriate if the circumstances permit.  If there is to be any variation to the withholding amount following the ATO determination, notice should be provided to the purchaser before settlement so that the purchaser is aware of the reduced withholding amount. 

Should a vendor or a purchaser have any questions or concerns about the new withholding tax regime, please contact Marshalls and Dent Lawyers.  

Joshua Kaplan - Senior Associate