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NEW rules will soon apply to the sale of Australian property worth $2 million or more, with local sellers required to obtain a clearance certificate to avoid the 10% tax.

NEW rules will soon apply to the sale of Australian property worth $2 million or more, with local sellers required to obtain a clearance certificate to avoid the 10% tax.

From July 01 onwards, a 10% non-final withholding tax will automatically apply for all property sales over $2 million.

These properties include vacant land, buildings, residential and commercial property, mining, quarrying or prospecting rights, and lease premiums paid for the grant of a lease over real property in Australia.

The new rules also apply to other property assets, including indirect real property interests in Australian entities whose majority of assets consist of the above asset types, and options or rights to acquire any of the above asset types.

The new rules are to ensure that all foreign investors pay their capital gains tax (CGT) liabilities after selling their real estate investments.

Because of the blanket application of the rule, an Australian resident will also be required to pay the 10% tax if they do not obtain a clearance certificate from the ATO prior to settlement.

In order to gain the clearance certificate, an Australian seller must provide a declaration to the ATO that they are not a foreign resident.

The ATO said only an Australian resident can obtain a clearance certificate.

Solicitors, tax agents or other representatives of the vendor can also apply on the vendor’s behalf. However, conveyancers who are not legal practitioners or registered tax agents cannot apply on behalf of the vendor.

A clearance certificate is valid for 12 months from the date issued, so the vendor may be able to use it for multiple disposals of real property that occur within that period, therefore they do not have to reapply each time they dispose of a property.

The clearance certificate form is available for download at https://www.ato.gov.au/Forms/Foreign-resident-capital-gains-withholding-clearance-certificate-application-instructions/

An online version will be available from 27 June 2016.

The ATO advised that an application could take between 14-28 days to process.

Property Review Australia / 19^th May 2016