On July 1 this year the Federal Government activated a new measure to capture capital gains tax on the sale of property by foreign owners. This was in response to a realisation that almost all foreign owners selling property at a profit have quickly been moving their money off-shore – thus avoiding payment of capital gains tax.
The new regime affects all properties sold for $2,000.000 or more. The purchaser of a property must hold back 10% of the sale price at settlement and remit this to the ATO.
Sellers can apply for an exemption. The reality is just about all applications, where the owner is an Australian tax payer and/or there is no capital gains tax payable, are approved and the settlement of the sale goes through in the normal way. However – there is a massive “trap” that will undoubtedly catch many purchasers. This is the “trap”… If a purchaser is not provided with an exemption certificate and does not retain the 10% then the PURCHASER STILL HAS TO PAY THE 10%, PLUS INTEREST!!
Imagine purchasing a property for $2,200,000 (not hard to do in Sydney) and then, a few months later, receiving a demand from the ATO for $220,000 plus interest!! It may be easy to dismiss this new regime as one affecting only expensive properties. However, with the passage of time more and more properties will fall into this category – and there is no guarantee that the regime will not be expanded to include properties of lesser value.
Never has it been more important to get the best professional advice when buying or selling property!