Conveyancing: You may be affected by new Tax Laws
- By Jake Woolford –
Selling a house? Escalating house prices are a big issue in Australia as countless people struggle to afford to buy their own homes. The Federal Government attributes this problem to foreign ownership of real property and has attempted to combat it by introducing new taxes in 2016. Then on 1 July 2017, changes to the scheme came into effect, tightening the laws even further.
Because the scheme applies to Australian residents as well as foreign property owners, it’s important to understand how it works. Here’s what you need to know.
Foreign Resident Capital Gains Tax (FRCGT) and selling a house– How does it work?
From 1 July 2016, the FRCGT scheme came into effect. The aim was to make it easier and more effective for the Government to collect capital gains tax owed by foreign residents.
But the Government decided to cast the net much wider than that. It decided that the scheme would apply to all residential properties that met the criteria, regardless of whether the owners lived within or outside of Australia.
In essence, if any person wanted to sell their Australian residential property, the purchaser of the property would have to withhold ten percent of the purchase price and give it to the Australian Taxation Office (ATO). This meant that the purchaser was paying tax on the seller’s behalf.
If the seller then wanted to claim all or part of that money because they didn’t owe that much in taxation, they would have to lodge an income tax return to get a credit.
These laws applied to residential real estate with a market value of $2 million or more.
But if the seller had a clearance certificate issued by the ATO, the property would be excluded from these requirements. The purchaser only needed to show the certificate to the purchaser and that would be evidence enough that the purchaser could pay the full purchase price to the seller, rather than withholding and remitting ten percent to the ATO.
On 1 July 2017, amendments to the FRCGT scheme came into effect.
Now, the withholding rate has increased from ten percent to 12.5 percent. It applies to properties with a market value of $750,000 or more. This is a significant decrease from the original $2 million threshold and the effect will be that the Government will collect more money on more properties. These changes will apply even for contracts of sale that were entered into before 1 July 2017.
The clearance certificate exemption will continue to apply.
What it means
These changes mean that at the time of settlement (the process in which the property is transferred from the seller to the purchaser), the seller’s conveyancing representative must show the purchaser’s conveyancing representative the clearance certificate. If the seller doesn’t do this, the purchaser is legally required to withhold 12.5 percent of the purchase price and forward it to the ATO.
Once the contract of sale has been signed, a seller should instruct their lawyer or conveyancer to immediately obtain a clearance certificate from the ATO. This should be done as soon as possible because typically it takes the ATO a minimum of 14 days to process the certificate.
These laws have the potential to affect many legal areas. Conveyancing is an obvious one, but they will also impact any situation in which there may be a transfer of residential property. For example, deceased estates, family law cases and even bankruptcy or insolvency proceedings.
Also, because the threshold has reduced to $750,000, a huge amount of properties will now be caught by these requirements. It’s more important than ever to make sure that you get proper legal and accounting advice so that you’re not unfairly penalised in any way. If you consider that 12.5 percent of $750,000 is almost $100,000, you can begin to imagine the impact. If you are relying on every last cent of your property sale to settle on your next home, any withholding of funds can have disastrous consequences. And even if you eventually get a tax refund, if the money’s not available on settlement day, it could derail all of your plans.
FREE FIRST INTERVIEW
NO WIN NO FEE
LOCAL LAWYERS FOR LOCAL NEEDS
GET THE RIGHT LAWYER FIRST
Having such a short time frame I was very impressed with the outcome made by [my solicitor]. Excellent and timely manner
Very professional mannerism and overall great outcome was delivered by Websters Lawyers.
West Ryde NSW
Helpful, explained fully, patient, excellent service.
Patient and helpful in explaining the process.
Call Websters Lawyers for a most professional and friendly service. All understanding with [my solicitors] and the reception staff. Thank you so much.
Making my will was effortless on my part, with everything explained clearly. Well done to all.
Great service, professional, explains things clearly, definitely recommend Websters Lawyers.
Patient, professional, good communication about procedures and probable outcomes.
Thank you for all your work over the course of the case. You [both] were always very approachable and I appreciated your understanding and professionalism in all areas.
All in all my experience was great. Thank you for your time and expertise.
My matter was dealt with efficiently and was explained in an understandable language. A pleasant experience.
Practical and very helpful. Reasons and explanations given where needed
I stumbled across Websters in the Yellow Pages and I rang, explained my situation and immediately they took my case on. Greatly appreciate their services.
The service from Websters Lawyers was outstanding. [My solicitor] was caring, had patience and was very professional. Wonderful personality.
[My solicitor] made everything so simple to understand. [The receptionist] was wicked too, would recommend them anytime. Level of entire service was outstanding.
I had dealings with Websters over 20 years ago. They were my first choice when I recently needed legal advice. Both legal and office staff were professional, courteous and accessible at all times. Everything was explained up front in a clear and concise manner. I would not hesitate to recommend their services.
It has truly been a pleasure communicating with you throughout the process. I really appreciate your patient and speedy replies to my questions and requests. You were always able to provide an easily understood response and this helped me deal with the process. Your friendly and positive manner encouraged me to seek your advice.
Battery Hill QLD
[My lawyer's] service was prompt and efficient with all questions explained clearly with all our requests carried out within the laws. Overall service was very satisfactory.
[My lawyer] was excellent.
Excellent service. Professional. Clear advice and instructions. Prompt actions. Overall 10/10!
Overall, I was happy with my outcome and my lawyer, would definitely recommend [my lawyer].
[My solicitor] was excellent at helping us through preparing our wills which were particularly challenging as they involved assets in multiple countries. She was professional and knowledgeable and spent time tailoring the wills to our needs.
[My solicitor] was very helpful, respectful and polite. She made sure I understood the process and documentation of our wills.
Professional. Smooth Transaction.
I found the whole experience from Receptionist to Solicitor excellent. They completely put us at our ease.
This was a new experience for us and didn’t have a clue what to do. [Our solicitor] on our first visit put us at ease, explained what will happen, pointed out there was a strong case. [Our solicitor] was genuine in her approach, kept us well informed, explained actions several times with patience and understanding. Overall very happy with the service we received.
[My lawyer] was very reassuring in her approach to my case. I felt that every possibility in terms of evidence to provide and possible outcomes were explained to me, The result of the case was the best possible outcome I could have expected.
With no previous dealing with the criminal justice system, [our solicitor] gave us excellent advice and guided us through a nightmare to achieve a just and correct outcome. [Our lawyer] was both forthright and compassionate in her handling of our case.
[My lawyer] explained all the legal terms in language I could understand – she was very easy to talk to.
Cameron, Munno Para
I felt confident knowing my matter was in good hands. Very professional!
Shravan, Christie Downs
Initial phone call was fantastic and the role of an executor was fully explained.
Penny, Henley Beach
The service I received was efficient and promptly finalised. The solicitor clearly explained the details and I was happy with how easy it was.
Dale, Fairview Park
[My lawyer] was exactly the lawyer I needed in a serious matter. The outcome was as predicted which was a fantastic result. I received prompt professional and personal service at all times. Capable and supportive in a very stressful period.
Jason, Munno Para West
I had any of my concerns answered to my satisfaction and understanding.
Valda, Ingle Farm
[My lawyer] is an excellent professional lawyer who assisted in achieving a great positive outcome/result. I sincerely thank you and your great staff for your assistance and guidance throughout my claim. Would highly recommend [my lawyer], staff and Websters Lawyers. Kept fully informed and guided, professionally throughout the matter.
Our work was dealt with very efficiently and speedily. Our lawyer was very professional, at the same time as being approachable. Communication was great.
My experience with Websters Lawyers was far beyond what I expected. From the moment I spoke to [my lawyer] she made me feel very comfortable and eased my stress. In my case I had a court appearance the day before we were scheduled to fly to Spain, Considering my first appointment with her was only 2 weeks before the court hearing, she was able to obtain the police statement and thoroughly work on my case within that limited time frame. She was very knowledgeable, understanding and confident which greatly relieved so much pressure from me and my family. At court, she explained everything thoroughly and advised me of all the possible outcomes. Price, service and result, very highly recommended. Thank you Websters Lawyers.
Rafael, Davoren Park