The new financial year will see a new obligation to be levied on the sellers and purchasers of Australian Real Estate.

Sellers must seek new documentation and buyers must withhold should they not receive the new documentation.

While the measure is chiefly aimed at ensuring foreign owners of Australian Real Estate meet their Australian CGT obligations when selling, the requirements are levied on all participants in the property market when party to a property transaction that is over $2 million.

The seller will be required to provide the buyer with a 'Foreign resident capital gains withholding clearance certificate' (Certificate). Failure to do so will require the buyer to withhold 10% of the purchase price and pay this amount to the Australian Taxation Office.

The new rules achieve their stated goal by compelling foreign residents who sell Australian Real Estate to lodge an Australian Tax Return in order to claim the 10% withheld (against their capital gains tax liability) from their sale proceeds by the buyer.

The certificate, which certifies the residency of the seller, permits the buyer to ignore the requirement to withhold from the price paid to the seller.

The process appears straight forward and simplicity seems to be the intent with sellers able to apply for their certificate directly from the ATO.

However, as with all tax matters the many nuances may easily lead to errors and delays in negotiations and settlement of property deals.

When individuals are selling property, the process should be reasonably efficient; however where problems are likely to arise is when the vendor is an entity.

Confusion is likely to occur around which is the correct legal name of the vendor, the correct ABN of the vendor (the trustee as opposed to the trust) and of course the residency of a vendor entity may not be clear cut.

Finally as the rules stand at the moment, the application for a Certificate is technically considered tax advice, so not all traditional facilitators of property transactions will be permitted to assist with these applications.

'Caveat emptor' has never been more apt – from 1stJuly 2016 - the buyer really must beware.

If you have any questions, please contact Ulton on (07) 4154 0400.

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