New Financial Year, New Government Obligations AND Bonuses

With every new financial year comes Government changes. Two of the changes to come with the new year, as of 1st July, relate to first home owners and practically every vendor:

  1. Firstly, in a push to assist first home buyers to get into the crazy market which is Sydney, the NSW State Government have announced that for first-home-buyers, as of the 1st of July 2017, there will be an exemption from stamp duty for any property… not just brand new properties as it currently is: up to $650,000. There will also be a reduction in stamp duty for first home buyers who are purchasing property up to $800,000. The exemption up to $650,000, will essentially mean an initial saving for those first-home-buyers of up to $24,740.

The $10,000 First Home Owners Grant will still only apply to those purchasing brand new properties or land to build on. However, the stamp duty exemptions being extended beyond brand new properties should help more people getting into the market, and thereby help your sales agents get more buyers.

  1. The second change stems from a policy that was introduced last year, the Australian Taxation Office introduced the Foreign Resident Capital Gains Tax Withholding legislation. This provides that, through the conveyancing and settlement process of the transfer of land, a purchaser will be required to withhold ten percent of the purchase price from the settlement amount paid, and pay that money to the ATO on the behalf of the vendor should the property sell for over $2 Million.

Adjusting the threshold

This legislation is enforceable whether the vendor is a foreign resident or an Australian resident. That is, unless the Australian resident applies for and receives a clearance certificate from the ATO, which they need to forward through to the purchaser’s solicitor or conveyancer prior to settlement.

On 9th May 2017, the Government announced proposed changes to the foreign resident capital gains withholding (FRCGW) rate and threshold. The changes will apply to contracts entered into on or after 1st July 2017:

  • For property sales where the contract price is $750,000 and above (currently $2 million), and
  • The FRCGW withholding tax rate will be 12.5% (currently 10%).

The existing threshold and rate will apply for any contracts that are entered into before 1st July 2017, even if they are not due to settle until after 1st July 2017.

The timing of the change

It is suggested that because of the significant drop in threshold amount, the wait times for the clearance certificate will increase dramatically. Whilst it is essentially not the role of the agent, it is strongly suggested that the agent recommends to the vendor to have discussions with their solicitor or conveyancer regarding the FRCGTW at the earliest opportunity. Remember, just because it is called Foreign Resident Capital Gains Tax Withholding, does NOT mean that it is only going to affect foreign resident vendors.

Finally on this topic, it is equally important for the purchaser to have the same discussion with their solicitor or conveyancer if they are purchasing property over $750,000. If they have not received a clearance certificate and have not withheld and forwarded to the ATO the withholding amount, the ATO have the right to seek that full amount owing directly from the purchaser themselves.

The Contract for the Sale and Purchase of Land places the responsibility upon the purchaser to withhold the money, so there are two steps in the process:

  1. Vendor must apply for, receive and hand over the clearance certificate (if they are eligible), and
  2. The purchaser, if they do not receive the clearance certificate, must withhold the FRCGTW amount and forward it through to the ATO.

『Til next time,

Wishing you every success in your business ventures,

Rosy Sullivan

Australian College of Professionals is EAC’s training partner.