Navigating Withholding Rules for Property Transactions After 1 July 2017
When a property transaction is concluded on or after 1 July 2017, a withholding rate of 12.5% is applicable. For example, in a $1 million property sale, Michael would withhold $125,000 from the purchase price, paying Jane $875,000 at settlement. Jane can claim this $125,000 as refundable credits when she lodges her 2020 tax return, potentially reducing her overall income tax liability.
Impact of Main Residence Exemption:
If Jane qualifies for the main residence exemption, whether fully or partially under the transitional rules, she can apply for a variation notice from the ATO to adjust the withholding rate. If the exemption is full, the rate can be reduced to 0%; if it's partial, it can be reduced to anywhere between 0% and just under the standard 12.5%. It's crucial that Jane obtains this variation notice and provides it to Michael before settlement to ensure the adjusted rate is applied.
Scenario Where Jane is an Australian Resident:
If Jane is an Australian resident for tax purposes, she should secure a clearance certificate from the ATO. This certificate confirms her residency status and exempts the transaction from foreign resident CGT withholding rules. Jane must provide this certificate to Michael before settlement, ensuring that no withholding occurs.
For detailed guidance or to discuss specific cases, contact Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment through our live calendar.