New property taxes cast wide net from July 1

29 June 2016

AFR.com, 29 June 2016

by Larry Schlesinger

New federal and state tax rules and charges will kick in on Friday targeted at foreign owners, developers and buyers of Australian real estate.

Nationally, a new withholding tax for property sales of $2 million and above kicks in on July 1 requiring buyers remit 10 per cent of the purchase price to the Australian Tax Office if the vendor is not an Australian resident for tax purposes.

However, under the rules all $2 million-plus vendors will be required to obtain a clearance certificate from the ATO to prove they pay tax in Australia. Foreign vendors can apply for a variation if for example, they don't expect to make a capital gain on the sale.

"The seller needs to provide a clearance certificate to the buyer by settlement, or the buyer will be required to withhold 10 per cent of the sales price and pay this to the ATO," explained Assistant Tax Commissioner Malcolm Allen.

A spokesman for the ATO said it had processed 340 clearance certificates and variations between May and June 2016 with a high proportion of certificates issued within seven business days.

"We have continued to work closely with the real estate industry in the lead up to July 1, including running 32 public forums around the country and an online webinar, to ensure awareness of the measures," he said.

Vendors must prepare

Justin Brown, chairman of CBRE Residential Projects told the Australian Financial Review: "Our view on the withholding tax rules is that, similar to FIRB requirements, vendors need to prepare and apply. However, it is far less of an impost than the added foreign stamp duty on the eastern seaboard."

In Victoria, the foreign buyer stamp duty levy will more than double to 7 per cent on July 1 – the highest on the east coast – adding $36,750 to the cost of buying a $525,000 median-priced apartment. 

Foreign developers will also have to pay the levy on land acquisitions and will be hit, from 2017, with a tripling of the foreign owner land tax surcharges from 0.5 to 1.5 per cent.

Yuan Tao, managing director of developer Poly-Southlink, a joint venture between his family and Chinese mega developer Poly, told the Australian Financial Review the tax changes would slow down sales in the short term, but would not impact on its overall growth strategy.

He said in light of all the changes, the developer would shift its focus from designing apartments aimed at investors to appealing to the owner-occupier market.

"Poly-Southlink is a new company and we are learning from the Australian market, appreciating it is a different apartment market here compared to China.

"In China, we build not only for the investor but luxury apartments for families and this is the area we want to grow in Australia – offering choice for owner-occupiers who can live with their families in apartments," Mr Tao said.

Andrew Fortey, managing director of PDS Group, which represents numerous big Asian developers in Melbourne, said it was "mind boggling" how quickly the raft of new taxes and policies had been imposed on the development industry by state and federal governments without any prior signalling.

"Any short-term budgetary gain will be offset by long-term problem of attracting investment into Victoria, making it less competitive. We used to be the most competitive state, but we are not any more," Mr Fortey said.

Read more: http://www.afr.com/real-estate/commercial/sales/new-property-taxes-cast-wide-net-from-july-1-20160531-gp7w0u

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