Selling property over $2 million - new rules apply from 1 July 2016
As part of the governments focus on strengthening our foreign resident capital gains tax (CGT) regime, new rules will soon apply to sales of Australian real property with a market value of $2 million or more.
Sellers will incur a 10% non-final withholding tax for all contracts entered into on or after 1 July 2016 unless they obtain a clearance certificate or variation certificate.
Selling property with a market value of $2 million or above
Australian residents need to obtain a clearance certificate from the ATO prior to settlement to avoid the 10% non-final withholding tax and provide it to the purchaser prior to settlement.
Foreign residents may apply to the ATO for a variation to the 10% non-final withholding tax, and provide this variation notice to the purchaser prior to settlement.
Vendors can claim a credit for the withholding amount paid to the ATO against the final tax assessed in their income tax return.
“From 1 July 2016, vendors disposing of certain Australian properties with a market value over $2 million are subject to new withholding rules at settlement.”
Purchasing property with a market value of $2 million or above
You will be required to withhold 10% of the purchase price and pay it to the ATO unless the seller provides you with a clearance certificate
You may vary down the 10% non-final withholding tax if the seller has received a variation notice from the ATO and provided it you prior to settlement.
Purchasers must pay the amount withheld at settlement to the ATO.
For more information or guidance, please contact:
Martin van der Saag
Director
T: 02 9984 7774
E: martinv@northadvisory.com.au
Norman Ruan
Accountant
T: 02 9984 7774
E: normanr@northadvisory.com.au
About the author
Cayle Petritsch - Director & Wealth Advisor
Cayle Petritsch, Director and Wealth Advisor, works with our existing clients who have recognised the importance of business owners making strategic financial choices not only for their company, but for their personal finances too.
Cayle saw a great opportunity to expand North Advisory’s services into SMSF/superannuation, personal wealth management, asset protection services and other crucial personal finance facets that business owners need to consider.
His approach to wealth management allows you to receive highly personalised wealth advice. Working closely with Marius, Cayle understands the unique needs of every client, from their lifestyle and business goals to their retirement plans.
Key Takeaways
A new property withholding regime applied from 1 July 2016 for sales over $2 million.
This rule required purchasers to withhold 10% of the purchase price at settlement for remittance to the tax authority.
The rule applies regardless of residency status.
Both Australian residents and foreign residents selling property over the threshold are captured by the withholding requirement.
Withholding acts as an upfront collection of potential capital gains tax.
It helps the tax authority secure revenue that may be payable on capital gains arising from high-value property disposals.
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Frequently Asked Questions
Is the amount withheld always 10 % of the sale price?
Yes — by default 10 % of the contract price must be withheld, but sellers can apply for a variation from the tax office to reduce the amount withheld if their actual tax liability is expected to be less.
What happens after the purchaser withholds the amount?
The purchaser pays the withheld funds to the tax office, which holds it as a credit against the seller’s eventual capital gains tax liability once they lodge their tax return.
Do these rules apply if the seller is an Australian resident?
Yes. If the property is taxable Australian property and the sale price is over $2 million, the purchaser must generally withhold 10% at settlement — even if the seller is an Australian resident (unless the seller has an approved ATO variation or exemption in place).
What change applied to property sales over $2 million from 1 July 2016?
New law requires purchasers to withhold 10 % of the purchase price at settlement when an Australian property’s value exceeds $2 million and remit that amount to the tax office as a pre-payment of possible capital gains tax.
Who is affected by these withholding rules?
The rules apply when selling taxable Australian property with a value over $2 million, including where the seller is an Australian resident or foreign resident disposing of such property.
What is the purpose of the withholding?
The policy aims to help ensure that capital gains tax obligations are met on high-value property sales by collecting a portion of tax at settlement rather than waiting for the annual tax return process.
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