The new legislation will come into effect under the bill on 1 July. It introduces a new 10 per cent withholding obligation on the purchasers of properties worth more than $2 million where the vendor is a foreign resident for tax purposes. Sellers are now also required to obtain a clearance certificate to prove they are an Australian resident for tax purposes.
Manda Trautwein, director at William Buck, said the legislative changes will put Australian and foreign residents on a level playing field, but will also pose significant challenges.
"The tax compliance burden for resident taxpayers will significantly increase and conveyancers will need to ensure their clients are abiding by the new laws to limit property settlement delays," she said.
The government is expected to significantly benefit from the new changes as there should be less tax revenue leakage, according to Ms Trautwein.
"From a buyer's perspective they now have an obligation to withhold 10 per cent of the property price to ensure the purchaser is compliant with the new regulations, otherwise they could be liable to pay a penalty which is up to the full 10 per cent of the purchase price plus interest," she said.
"From a seller's perspective, they could have less funds available, which might otherwise have been available to discharge the mortgage on the property and/or fund a new property purchase. They could end up with only 90 per cent of the proceeds on settlement unless they are able to obtain a clearance certificate from the tax office."
Ms Trautwein said the legislative changes were introduced to reduce difficulties that can be associated with collecting tax on gains resulting from the sale of property assets from foreign resident taxpayers.
"Some of these tax payers have a limited connection to the Australian tax system and may be in a position to transfer proceeds offshore prior to compliance action being taken. Voluntary compliance by foreign residents in this regard is said to be extremely low," Ms Trautwein concluded.