How much do we all hate taxes? They're the worst.
Unfortunately, when you are buying or selling property, the government has its greasy little paws all over the transaction.
In the last two years, three new tax requirements have been added to the settlement process and they are very likely to impact your transaction.
Foreign Buyer Duty
This is the newest addition to the State-based Transfer Duty (previously stamp duty) that purchasers need to pay before settlement. If you are not an Australian Citizen or permanent resident (or one of the other numerous categories as detailed here by the Office of State Revenue), you now need to pay additional Duty of 7% of the purchase price of the property, in additional to the usual Transfer Duty.
If, for example, you are buying a property for $450,000.00, the Foreign Buyer Duty would be $31,500.00 in additional to Transfer Duty of $15,390.00 at the Residential Rate.* This can significantly impact the funding of your purchase, so be mindful before you enter a contract.
GST Withholding
If you buy a newly created residential property, so a villa, unit or townhouse, generally speaking, the seller probably has to pay GST.
It is now the responsibility of the buyer's settlement agent to remit any GST payable directly to the ATO at settlement. Good times for us.
The purpose of this requirement is to stop an activity called 'Phoenixing'. This is where a developer will form a company, develop land, sell the developed land, and then de-register and close down the company before paying the required GST.
This requirement adds another level of complexity to the transaction in determining what properties are required to withhold and which are exempt.
If you are the seller of these properties, the GST is deducted from your proceeds, and will be credited to your next BAS lodgement, so you need to be diligent in your accounting.
CGT Clearance Certificates
If you are selling a property for $750,000.00 or more, you need to obtain a Clearance Certificate for Capital Gains Tax. This is another attempt to collect tax from foreign owners, this time collecting CGT that could otherwise disappear overseas with no chance of recovery.
If the seller cannot provide a Clearance Certificate, 12% of the purchase price must be remitted to the ATO at settlement.
Thankfully, the certificate is quite easy to obtain for anyone who is a tax resident, and your conveyancer can help you with the necessary documentation and submissions.
*All calculations based on FY2018-19 figures.