Real Estate Industry: Impact of new 10% withholding rule
This alert is relevant for you if you are involved in the real estate industry (e.g. estate agents or conveyancing lawyers) or anyone who is thinking of buying or selling real estate in Australia.
Are you affected by the new 10% withholding rule from 1 July 2016?
From 1 July 2016, all purchasers of real estate in Australia (whether purchased from a resident or foreign resident vendor), must withhold 10% of the purchase price, unless the transaction is excluded from these rules (e.g. if the purchase price of the property is less than $2 million) or the parties undertake certain actions before settlement date (e.g. a resident vendor obtains a clearance certificate).
The principal rule is that a purchaser will:
- pay 10% of the property’s purchase price to the ATO (on or before settlement) to serve as a prepayment of the vendor’s tax liability (that will be set-off against the vendor’s tax liability calculated when the vendor lodges a tax return); and
- only pay the vendor 90% of the purchase price (i.e. 10% of funds are withheld from their sale proceeds).
Added compliance costs
This 10% withholding obligation will inevitably lead to added compliance costs for both the purchaser and vendor of real property. For example, sale contracts may need to be updated to insert clauses where the obtaining of a clearance certificate by the vendor (and ultimately providing the certificate to the purchaser before settlement) will be a condition precedent for the sale to proceed.
Furthermore, if the purchaser fails to withhold the 10% or does not pay it over to the ATO, the purchaser will be liable to pay (as a penalty to the ATO) an additional amount equal to the 10% that was not withheld.
How can Nexia help you?
Important for purchaser and vendor to seek advice so that the position is clear prior to signing of the contract
This new legislation places an inescapable compliance burden on parties involved in selling property in Australia and will affect real estate agents and settlement agents.
This means, for all real estate transactions from 1 July 2016, the parties should consider the following issues set out in the table below:
Please contact your Nexia Advisor if you are thinking of buying or selling real estate and would like more advice in relation to this issue. If you are a vendor, we can assist in obtaining a clearance certificate so that a purchaser will not be required to withhold 10% of your sale proceeds.