The legislation surrounding the purchase of property from foreign residents is changing in July, so if you’re looking to get into the real estate market in the near future, tune in!

When a foreign resident sells taxable Australian property, the buyer must withhold an amount from the purchase price and pay it to the Australian Taxation Office (ATO).

This applies to vacant land, buildings, residential and commercial property, as well as leaseholds and strata title schemes.

Currently, the withholding tax rate is 10 per cent of the market value for properties with a contract price of more than $2 million.

However, on May 9, the Federal Government announced the withholding tax rate would increase to 12.5 per cent, and the threshold would decrease to $750,000 and above.

Any contracts entered into before July 1 will be subject to the previous tax rate and threshold, even if settlement happens later in the financial year.

Legislation is in the pipeline for the proposed changes, which are intended to stop foreign investors from avoiding capital gains tax on Australian property and are expected to deliver $600 million into the government’s coffers over the forward estimates period.

How it’s worked in the past

From July 1, 2016, Australian residents selling real estate with a market value of more than $2 million had to apply for a clearance certificate from the ATO to avoid having to pay the 10 per cent withholding.

Vendors could also apply for a notice of variation, for example if they were a foreign resident making a capital loss on the property, or if only one of multiple sellers was a foreign resident.

However, if no clearance certificate or notice of variation was provided in time for settlement, the buyer had to withhold 10 per cent of the purchase price and remit it to the ATO.

Seek expert advice

If you’re looking to buy or sell property in the near future, we can make sure you are up to speed with all of the latest legislative changes.

We’ll explain whether you are required to apply for a clearance certificate or notice of variation and, if necessary, how much foreign resident capital gains tax you are required to withhold.

To find out how we can help, please call (03) 9875 2900 or send us details via the contact form below.