FOREIGN RESIDENT CAPITAL GAINS – WITHHOLDING OBLIGATIONS BRIEF FOR REAL ESTATE &/ SETTLEMENT AGENTS- AFFECTS ALL REAL PROPERTY TRANSACTIONS $2 MILLION OR MORE INCLUDING AGGREGATED DEALS
Legislation will take effect as of July 1st 2016 requiring that ALL real property transactions over $2m be assessed to determine what (if any) Capital Gains Tax (CGT) liability exists.
There are many different scenarios which include multiple buyers or sellers and variations to the amount held.
In circumstances where there are multiple buyers (ie. A farmer has sold his farm off in separate lots) but the aggregated market value is over $2 million, the Seller will be required to provide a clearance certificate. If not each Buyer must withhold in proportion to their percentage of the total purchase price.
More information on this can be found on the ATO website at the following links:
https://www.ato.gov.au/…/js36800_Foreign%20residents%20fact… or https://goo.gl/TFkD3t
https://www.ato.gov.au/…/foreign-resident-capital-gains-wi…/ or https://goo.gl/1Y01VE
https://www.ato.gov.au/…/foreign-resident-capital-gains-wi…/ or https://goo.gl/GYzmuA
https://www.ato.gov.au/…/Foreign-resident-capital-gains-wi…/ or https://goo.gl/2GC9o2
https://www.ato.gov.au/…/Foreign-resident-capital-gains-wi…/ or https://goo.gl/EFtGIZ
- The instances where an obligation to withhold will be rare. Typically, ownership by foreign residents tends to be for considerations below $2m. (Beware an aggregated value will apply).
- In most sales of $2m+ will be resolved by an application for a “Clearance Certificate”.
- Clearance Certificates will be required on all real property transfers greater than or equal to $2m
- A Clearance Certificate provides certainty to purchasers regarding their withholding obligations. The clearance certificate confirms that the withholding tax is not to be withheld from the transaction.
- Clearance Certificates can be requested prior to or at the point of listing a property and will remain valid for 12 months
- Prior to settlement the purchaser (Their Settlement Agent) must withhold 10% of the purchase price unless the vendor shows the purchaser a Clearance Certificate from the ATO
- AICWA, REIWA and the Department of Commerce will investigate the need to communicated “best practice” for applying for Clearance Certificates so as to avoid delays to settlement.
- It is anticipated that Real-estate Agents and Sales Reps will advise the vendor that a Clearance Certificate is necessary if it is anticipated the sale will be over $2m. Vendors will either themselves complete the Application or seek advice from a recognised Tax agent or Lawyer.
IMPORTANT: Under no circumstances will Settlement Agents be permitted to nor required to complete or submit the Clearance Certificate Application. It is however, anticipated that Settlement Agents will need to advise their clients of where to access the Application and to whom their client must seek appropriate advice from.
- It is anticipated that a new “Annexure” will be drafted and be inserted into the Joint Form of General Conditions to assist all parties understand their obligations.
- Three applications/forms make up the assessment and payment process
- 1. Variation Application (Form 1).
- 2. Clearance Certificate Application (Form 2)
- 3. Purchaser Payment Notification (Form 3)
- Currently under the Tax Agent Service Act (2009) all three Forms can NOT be completed by a Licensed Settlement Agent.
- Treasury/ATO are confident that an exemption will be made shortly to permit Licensed Settlement Agents to ONLY complete Form 3 – “Foreign resident capital gains withholding purchaser payment notification form”.
- Failure to achieve the exemption would in the opinion of AICWA signify justifiable cause to differ the implementation date until the matter is resolved.
- Forms 1 & 2 constitute tax advice and it is anticipated that any claims arising from negligence on the part of a Settlement Agent in completing these Forms will not be covered by PI Insurance. The AICWA hope to circulate a statement shortly by the industry insurer/underwriter clarify this point.
- AIC National and AICWA are strongly opposed to Settlement Agents having to complete Forms 1 & 2 and believe it does not constitute legal work to affect a property transfer.
- In principle, Australia’s largest industry PI underwriter (pending a proper review and risk assessment) see no issue with Licensed Settlement Agents completing Form 3.
- Please note: there is no application fee for submitting any of the Applications/Forms.
Moving Forward (where to from here)
- ATO will be shortly conducting education seminars at their Perth Office. The AICWA will communicate dates as soon as more information is available. AICWA will be strongly recommending a webinar so that its regional Members and those unable to attend are not adversely affected.
- AICWA will liaise with the ATO to identify areas of concerns and seek clarification on issues as they come to light.
- The Department of Commerce intends to issue an e-Bulletin and provide a ruling/directive as to the ability of Settlement Agents to complete Form 3.
In the long-term (2017), AICWA will investigate the need for CPD training or future education needs
Soucre; AICWA email newsletter update 21/4/16