Property: Capital Tax Rules Set to Affect Over Half of all Investors

There is likely to be a little bit more red tape for investors who sell their properties in Australia. That is because investors who sell a property for over $750,000 will be required to obtain a clearance certificate from the ATO in order to prove that they are an Australian resident.

The change came into effect at the start of the financial year and is aimed at targeting non-Australian residents who invest in Australian property. It is estimated that around 60% of property investors will be impacted by the change in the price threshold, which was previously $2 million.

Cities to be Particularly Affected

Australian property investors in Sydney and Melbourne will be especially affected by the change, given the rapid rise in real estate prices in those cities in recent years. The median dwelling price in Sydney is currently $856,000, well over the $750,000 minimum selling price for which a clearance certificate is needed.

Melbourne’s median dwelling price is $655,000, which is pushed up by high prices for inner city houses. Investors in other major Australian cities will also be affected, with the lowest median dwelling price in the country’s capitals (excluding Adelaide and Hobart) currently at $475,000.

A Foreign Resident Capital Gains Withholding (FRCGW) tax of 12.5% will apply to all sales over $750,000 where a clearance certificate has not been provided. The tax will be taken from the sale price of the property before other elements of its cost base are taken into account.

As an example, if a property is sold for $1,000,000, $125,000 of that will be subjected to the FRCGW tax if no clearance certificate is provided to the ATO. The property investor may have incurred other costs that normally affect the cost base for capital gains purposes – such as agent’s fees or any capital works they may have done on the property.

For the purposes of calculating the FRCGW tax, however, these costs would not be added or subtracted from the $1,000,000 sales price as it would be when calculating capital gains.

Property investors do not need to panic about these recent changes and the potential requirement to get a clearance certificate. As a firm of experienced accountants in Melbourne, Hart Partners can help investors see if they may be affected by the FRCGW threshold changes and avoid any potential shocks when they sell their property.

We welcome your call on 9600 3220, or email, today.