Are you a:
- Property buyer? Do you know you can potentially be liable to pay a penalty equal to 10% of the purchase price to the ATO?
- Property Seller? Do you know you can potentially have 10% of your sale price withheld? (i.e. only receive 90% of your sale price initially)
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 Edwards Marshall NT 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:
Scenario when selling real estate |
Action required |
| Purchase price < $2 million (resident / foreign vendor) | No action required No withholding obligations |
| Purchase price ≥ $2 million (resident vendor) | Vendor required to apply for a clearance certificate and provide it to the purchaser before settlement. If no certificate, then 10% withholding applies. |
| Purchase price ≥ $2 million (foreign vendor) |
10% withholding rule unless variation before settlement |
Please contact your Nexia Edwards Marshall NT 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.
