31 May Tax Changes To Effect 60% Of Property Market
A legislation change is set to give lawyers and conveyancers extended powers as they take on the role of tax collector during the property settlement process.
From July 1, the changes to legislation will limit the capital gains tax (CGT) exemptions available to foreign and temporary residents and increase withholding rates for foreign tax residents.
GlobalX CEO Peter Maloney said that the process will involve lawyers and conveyancers acting as tax collectors, ensuring that money from property sales is withheld during the settlement process and paid to the Australian Tax Office (ATO) when required.
“Currently, all property transactions worth more than $2 million require 10 per cent of the purchase price to be withheld and transferred to the ATO,” Mr Maloney said.
“The only way to avoid this tax is for a vendor to obtain a Clearance Certificate that states they are not a foreign resident.”
“With these changes lowering the property value threshold from $2 million to $750,000, more lawyers and conveyancers than ever before will be burdened with this administrative process.”
Mr Maloney said that the increase from a 10 per cent tax of the purchase price to 12.5 per cent meant that transactions would involve greater sums of money, with the measures expected to raise an estimated $581 million in tax revenue.
“Lawyers and conveyancers will play a crucial role in these high-value transactions and are essentially collecting revenue for the government,” he said.
“In the absence of a public awareness campaign by federal government, it is being left up to legal professionals to advise their clients of the withholding threshold and the importance of obtaining a Certificate of Clearance.
“As well as the added responsibility that comes with this, the new process will create more red-tape and paperwork for lawyers, conveyancers and their clients.
“For example, we estimate only 11 per cent of Australian properties were caught in the $2 million threshold, but lowering it to $750,000 will now burden 64 per cent of properties.
The measures, aimed at easing Australia’s housing affordability crisis, also include a more stringent asset test to prevent foreign tax residents from using loopholes to avoid their CGT responsibilities.
Australian Institute of Conveyancers President Santina Taranto said those who plan to buy or sell property in the new financial year should listen closely to the advice of their lawyer or conveyancer and obtain a Clearance Certificate if they are not a foreign resident.
“If you fail to obtain a Clearance Certificate, even if you are an Australian resident, you will be treated as a foreign resident. It’s really a situation of ‘foreign’ until proven otherwise,” Mrs Taranto said.
“That means the money withheld during settlement will be paid to the ATO and the vendor will not receive the full payment for the property.
“In most cases, you can expect to receive a Clearance Certificate in less than a fortnight. However, in case there are complications, buyers should apply for the certificate immediately, to avoid missing out on their dream home.”