Property withholding rules explained

7/17/2017
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Some quick facts you need to know:

  • All contracts of sale signed on or after July 1st 2017 where the consideration value is greater than or equal to $750k require a Clearance Certificate issued by the ATO.
  • Failure to obtain a Clearance Certificate will require the purchaser’s agent (Conveyancer) to retain 12.5% of the sale price at settlement and remit funds to the ATO on the day of or shortly after settlement. General interest charge may be imposed on amounts paid after the due date. 
  • Conveyancers representing the purchaser should ensure a Clearance Certificate has been obtained in the days leading up to settlement.
  • AICWA best practice is to ensure that a Clearance Certificate has been obtained by the client prior to them engaging your services.    
  • Conveyancers representing vendors must ensure the Clearance Certificate has been issued prior to settlement and is made available to the purchaser’s agent (Conveyancer) prior to settlement.
  • AICWA best practice is for real-estate agents/sales reps to ensure their clients (vendor) obtain a clearance certificate prior to or near to the point of listing the property.
  • Vendors should not rely on their own judgement in assuming a Clearance Certificate will be issued without delay. An outstanding debt or failure to have lodged a tax return in recent years may result in the ATO declining a Clearance Certificate.
  • In the event a Clearance Certificate is not produced in the days leading up to settlement it is recommended that the purchaser contact the real-estate agents/sales rep and seek a variation. Alternatively, the purchaser should seek legal advice.
  • Failure to ensure a Clearance Certificate on the day of settlement will result in the purchaser’s Conveyancer being obligated to withhold 12.5% to be remitted to the ATO.       
  • Clearance Certificates must be produced for all sales regardless of the origin, nationality or resident status of the vendor(s). The requirement extends to companies selling properties. The rule of thumb is that the named person or entity appearing on the Certificate of Title as a registered proprietor must comply. 
  • The burden of applying for or facilitating the Clearance Certificate should not be that of the vendor’s Conveyancer.
  • In the event the vendor’s Conveyancer is required to assist obtain a Clearance Certificate they cannot complete the Clearance Certificate application form by signing as “an agent or registered tax agent authorised to complete this form on behalf of the entity”.
  • The vendor’s Conveyancer is permitted to submit the Clearance Certificate application form on behalf of their client ensuring that their client has correctly completed the form by declaring “I declare that I am the vendor named in this form and the information contained in this form is true and correct”.
  • AICWA best practice is to retain the signed application form and included it as part of the client file.
  • Licensed settlement agents are permitted to charge their client (vendor) a fee for submitting the form on their behalf. This fee must be disclosed prior to the client signing the authority to act. A fee for cannot be charged for assisting with completing the form.  
  • REIWA have amended their Annexure HERE . It is a requirement that the annexure be completed for any contract of sales greater than or equal to $750k signed on or after July 1st 2017.   
  • REIWA have issued some guidance notes to their members HERE
  • Licensed settlement agents are permitted to charge their client (purchaser) a fee for withholding the 12.5% remittance to the ATO. This fee must be disclosed prior to the client signing the authority to act.
  • The purchaser may challenge why they are being charged a fee for performing a service that benefits the vendor. This is a very good question and one the ATO must take responsibility for explaining why they have created legislation that requires the burden of tax collection be placed on the purchaser. Currently there is no recognised mechanism by which the costs of managing the withholding obligation can be recouped from the vendor either by the purchaser or their Conveyancer unless agreed to (i.e. a variation).
  • Choosing to charge a fee is optional.
  • In the event a Clearance Certificate is not issued by the ATO the client (vendor) will be notified as to why by the ATO.
  • Any outstanding issues or sum owed to the ATO may be resolved by the Vendor completing or seeking legal assistance to complete the “Foreign resident capital gains withholding purchaser payment notification form”. Under no circumstances should AICWA members assist with completing the form. 
  • The vendor’s Conveyancer is permitted to submit the notification form on behalf of their client ensuring that their client has correctly completed the form by declaring “I declare that I am the vendor named in this form and the information contained in this form is true and correct”.
  • AICWA best practice is to retain the signed application form and included it as part of the client file.
  • Licensed settlement agents are permitted to charge their client (vendor) a fee for submitting the notification form on their behalf. This fee must be disclosed prior to the client signing the authority to act. A fee for cannot be charged for assisting with completing the form. 
  • AICWA best practice is to retain the signed application form and included it as part of the client file.
  • All parties and their agents (conveyancers) should be in agreeance as to the sum to be withheld. This sum will be verified by the ATO along with a payment reference number prior to settlement and only on completion/submission of the notification form.   

For more information visit the ATO website HERE
For more commonly asked questions visit the ATO website HERE

Source:AICWA e-Bulletin 23 June 2017
Sellers &/ your Tax Agents may make Withholding Clearance application here.

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