Selling Property? You May Have to Prove that You’re an Australian Resident
Property investment has been favoured by Australians for many years, and with the market creeping up and up over the years, it’s no wonder why. What may have been small to medium investments are turning investment property owners into millionaires, and more and more Australians are jumping on the bandwagon.
Of course, our beautiful cities, beachside towns and countryside don’t just appeal to Australians – many cashed-up foreign investors and expats have been snapping up properties too. The high demand for property has been driving up prices further.
With the median house price in Sydney at just over $1.15 million according to Domain, for many Australians purchasing a property is becoming simply unachievable. With so many houses already snapped up and either sitting vacant or rented out by overseas investors, house prices are soaring, and fewer properties are on the market for Australians to buy.
In a bid to change this, new legislation has come into effect from July 1st 2018, which attempts to spin the property market back in favour of Australian residents.
New legislature may mean proving your Australian residency
Starting this financial year (July 2018), lawyers and conveyancers have been given further power as new legislation includes:
- Changing foreign and temporary residence tax exemptions on capital gains investments
- Increasing tax withheld from interest, unfranked dividends, and royalties for foreign residents.
Before July 1 2018, withholding tax of properties with a capital gain of more than $2million applied, as long as the seller applied for a clearance certificate from the ATO to prove their Australian residency. If the seller’s solicitor could not prove Australian residency, they had to withhold 10% of the transaction value, and remit that to the ATO during the property settlement process.
On July 1 2018, this threshold was drastically lowered to $750,000, meaning any seller of a property worth over $750,000 must prove their Australian residency to ensure that part of the property value is not given to the ATO. Of course, in Sydney that means the majority of properties are now over the threshold!
What is a capital gain investment?
A capital gains investment is an investment where you aim to reap the reward upon selling – whether that’s in one year after renovations to increase the property value or 25 years after having tenants. The capital gain is the money you make from selling the investment property.
What does this mean for overseas investors or temporary residents?
If you do not hold Australian Permanent Residency or an Australian Citizenship, and if the property you are selling is valued at over $750,000, then your solicitor is obliged to hold funds and remit 10% of the property value to the Australian Tax Office within one working day.
The good news here is that as the solicitor or conveyancer is acting as a recipient of tax when they pass it to the ATO, they technically cannot charge fees for this process, as it falls under the Tax Agent Services Act.
What does this mean for Australian Residents and Citizens?
If you are an Australian Resident or Citizen and your property you are selling is over $750,000, you simply have to prove your residency by applying for a clearance certificate from the ATO website. If you and your real estate agent believe your property will sell for over $750,000, it’s worth being prepared and applying for the certificate ASAP to stop any potential delay.
There is no cost in getting a clearance certificate, though it takes up to 5 days for the ATO to clear you, and there may be an administrative charge from your solicitor if they do this on your behalf. Applying for a clearance certificate may well become part of the process between the seller and real estate agent, with the number of applications being filed in future.
The new legislation may cause issues for Australian Residents and Citizens when trying to sell a property on behalf of a deceased parent – who may have never worked or never had a tax file number or ATO record. It’s not obvious how the ATO will deal with this, but with it potentially being a problem for many Australians, the ATO should be able to answer this in due course.
It’s important you discuss this new legislation with your real estate agent and solicitor when you are planning on selling your house – regardless of your Residency or Citizenship status!
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that.
If you’re thinking of selling your home and are ready to make the next move buying or investing, you can contact us for information about the best options for you when it comes to your mortgage.