Let’s recap on changes which have now taken effect following the latest Federal Budget.
The tax increases and charges to foreign buyers are estimated to bring in an extra $600 million for the government over the next 4 years. Buyers and sellers need to be on their toes in order to comply with the changes.
So what has actually changed?
Capital Gains Tax
Foreign and temporary buyers will no longer be entitled to an exemption on Capital Gains Tax when selling their principal place of residence in Australia. This took effect 7:30pm (AEST), 9 May 2017. Existing properties held prior to the change will be entitled to an exemption until 30 June 2019.
Withholding Tax Regime
Previously, all buyers of real property over $2million are required to withhold a percentage of the purchase price (unless the seller produces a clearance certificate from the ATO) and pay it to the ATO to allow the ATO to better collect payment of Capital Gains Tax from foreign owners.
In the budget, the threshold of $2million has been reduced to $750,000.00 to widen the ATO’s pool of CGT collection. The percentage of funds required to be withheld has also increased from 10% to 12.5%. This took effect from 1 July 2017.
This means that many more contracts fall under the new regime. All contracts for over $750,000.00 will require an ATO clearance certificates in order for the seller to receive full sale price at settlement.
Charge on Unoccupied Property
The Government has introduced a charge of at least $5,000.00 for foreign owners of residential property where their property is not occupied or not genuinely available on the rental market for at least 6 months per year; the “Foreign Investors Tax Levy”. This charge will be levied annually.
Limit on sale to foreign investors
The Government has introduced a cap on the total number of dwellings a developer can sell to foreign persons under a New Dwelling Exemption Certificate.
If you have any questions about these important changes for foreign investors, please contact our team of property and conveyancing lawyers today.
Tagged in: ATO Clearance Certificate, capital gains tax, CGT, foreign investors tax levy, foreign owners, new dwelling exemption certificate, rental market, temporary buyers, unoccupied property, witholding tax regime