Vendors and Purchasers who Reside Outside Australia

 

The laws in relation to property sales and purchase for people residing outside of Australia were amended in 2017. There are still many agents who are not clear on the requirements in relation to this legislation and we receive regular phone calls and questions at CPD classes.

As an agent, you need to understand these requirements, as you may well be asked questions by your vendor or purchasers (prospective). Whilst it is the client’s legal practitioner’s responsibility to advise and assist the vendor or purchaser with these details, your professionalism will shine through when you demonstrate an understanding of the requirements for vendors and landlords who reside outside of Australia. Remember, always refer your client back to their legal practitioner to confirm and finalise these matters.

Surcharge Purchaser Duty

In addition to purchaser stamp duty that all purchasers within New South Wales are required to pay on the purchase of land, a foreign investor is now liable to pay an additional surcharge on that stamp duty as a result of the 2017 State budget.

The Surcharge Purchaser Duty (SPD) has been raised from 4% (which was the amount introduced in 2016) to 8% for all contracts entered into after 1 July 2017.

Foreign persons are also no longer entitled to the 12 month deferral for the payment of stamp duty for off the plan purchases of residential property. The SPD must be paid within three months of the liability date (the date of the contract).

If the purchase of property is partly being purchased by a foreign person and partly by an Australian citizen or an exempt person, the surcharge will only be payable by the foreign person on the proportion of the property they are acquiring.

For example: if the property being acquired is residential and being purchased as joint tenants between one exempt person and one foreign person as defined by State Revenue, the purchase will be treated as though it was being structured as a tenants in common in equal shares purchase and the surcharge will be applied to the foreign person’s share being 50% of the dutiable value of the property.

Selling Foreign Owned Property

The second issue stems from a policy that was initially introduced in 2016, when the Australian Taxation Office introduced the Foreign Resident Capital Gains Tax Withholding (FRCGTW) legislation which provides that through the conveyancing and settlement process of the transfer of land, a purchaser will be required to withhold 12.5% of the purchase price from the settlement amount paid and pay that money to the ATO on the behalf of the vendor.

This threshold amounts for this legislation differs for Australian residents and foreign residents.

Australian Residents

• • for real property disposals where the contract price is $750,000 and above, the FRCGW withholding tax rate will be 12.5%
  • not applicable if the purchaser’s solicitor has forwarded an ATO clearance certificate to the vendor’s legal practitioner prior to settlement.

Foreign Residents

• • for real property disposals of any price, the FRCGTW withholding tax rate will be 12.5%

As a matter of disclosure to a vendor who is a foreign resident, although it is their legal practitioner’s role to undertake these processes, it is strongly suggested that the agent recommends the vendor to have discussions with their legal practitioner 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.

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

The Foreign Resident Capital Gains Tax Withholding regulations apply throughout Australia and is not State or Territory based.