Once again its July, the footy is heating up as it gets closer to finals but for many it means cold days rugged up inside, for some this is embraced by celebrating Christmas in July but there is always Winter Reds up in the Adelaide Hills. For others it simply means the start of a new financial year and that means tax!
WHAT IS FRCGW AND WHO DOES IT EFFECT?
In 2016 a foreign resident capital gains withholding (FRCGW) was introduced and applied to real estate transactions over $2 million dollars. A 10% capital gains withholding tax was required to be withheld by the Purchaser, regardless of the Vendors residency status unless a qualifying clearance certificate was produced prior to settlement, proving that they were not a foreign resident. This affected very few transactions and rarely needed to be dealt with. FRCGW will now affect any sale of property worth more than $750, 000.
There has been some confusion in the industry as to who is actually required to apply for these clearance certificates. On the surface, it sounds like only Foreign Residents need to supply this information however this is not the case. Regardless of whether you are an Australian Citizen or a Foreign Resident ALL Vendors must apply for the clearance certificate.
NEW COMPLIANCE LAWS
As of 1st July 2017, this has changed and the government introduced the new criteria in the Federal Budget. Now all Vendors selling property over $750,000 will now have to provide proof they are not a foreign resident. The capital gains withholding tax rate has also increased to 12.5%. This is achieved by applying for the clearance certificate online from the ATO and must be initiated early enough so that settlement can take place on time.
This change will affect a larger number of transactions and these vendors and their conveyancers will need to spend more time ensuring that they have complied with these new rules and I am sure that any downtime of government websites will cause a few headaches for those affected.
HOW WILL THIS AFFECT YOU?
When the limit was only $750,000.00 the time for the vendors to obtain their qualifying clearance certificate was quite minimal but the ATO now state they can take up to 28 days to produce. With the extra demand this is more likely to be the norm rather than the exception. In South Australia most contracts are signed with a 30 day settlement in mind. This will add an extra burden on the conveyancers who already have so much more legal documentation to comply with. I only hope the ATO have systems in place that may can cope with this extra workload and that settlements can be completed on time. To date getting banks to settle on time has been our biggest headache but I think that the government has just added one more!
As an industry it is so important that Vendors, Purchasers, Real Estate Agents and Conveyancers work together to ensure that the contract has a settlement date that is realistic so that the transaction can be settled on time. It is also more important than ever that any potential buyer and seller see a conveyancer before they sign a contract.
The team at McKay Business Services are all members of the AICSA and are proud Adelaide conveyancers