From 1 July 2017, vendors selling real property of a contract price of $750,000 and above, down from the previous threshold of $2 million, are subject to a foreign resident capital gains withholding (FRCGW) tax rate of 12.5 per cent unless they are able to prove their residency status with a clearance certificate from the ATO.
Australian resident vendors will have to provide a clearance certificate to the purchaser prior to settlement to avoid the 12.5 per cent withholding.
The Institute of Public Accountants senior tax adviser Tony Greco said that while the new measure was intended to target non-residents selling property and not lodging a return, the unintended consequence was that resident vendors were being implicated as well.
“Given that [the ATO] is saying that a lot of non-residents don't submit a return, it is sound policy in relation to the mischief but the way they've gone about it, it captures everyone by default so you've got to ask a question: is there a way to achieve the same outcome without catching everyone else?” said Mr Greco.
“Even though it is aimed at non-residents, anyone who transacts above that threshold essentially has to get that piece of paper.”
Augmentors principal Peter Adams said high house prices in capital cities such as Sydney and Melbourne meant most transactions would require an application for a clearance certificate, placing an administrative burden on both the resident vendor and the tax office.
“This is now going to become a convoluted thing in the buying and selling of property,” Mr Adams said.
“People are going to run around trying to get clearance certificates because if they don't get it in time, it's going to be a problem. So, that's going to be an additional administrative issue for people to deal with.”
Both experts highlighted the additional need to apply for a clearance certificate from the tax office as an added pressure for vendors to meet their deadline obligations before settlement.
The ATO states that it automatically processes around half of all applications, while manually processing the remaining half, resulting in a 14 to 28-day window to issue a clearance certificate.
“If you lodge your application within days of the settlement date and it requires manual processing, we cannot guarantee we can process it by the settlement date as we will not disadvantage those other applicants who applied earlier by delaying their application to process yours,” said the ATO in a statement online.