From 1 July 2016, those who purchase a residential or commercial property in Australia that is worth more than $2 million must withhold 10 per cent of the price.
Buyers are then required to remit this amount to the Tax Office unless they obtain a tax clearance certificate from the property vendor.
The new rule is designed to put a stop to foreign property owners who sell Australian homes without paying capital gains tax by transferring some of the responsibility to home purchasers.
Most property transactions will not be affected by the change; only 2.26 per cent of homes in Australia are estimated to be affected.
Clearance certificate forms are available on the ATO website and are valid for 12 months from issue. While no fee applies for clearance certificate applications, penalties and interest may apply when vendors make false declarations to the ATO or if a purchaser fails to withhold and remit the 10 per cent of the purchase price.
All Australians sellers of $2 million-plus properties will be classified as overseas investors unless they obtain a special tax clearance that confirms the 10 per cent withholding amount does not need to be withheld from the transaction.
The vendor must provide a clearance certificate to the purchaser by the settlement. Otherwise, the buyer must withhold 10 per cent of the sales price and pay this to the ATO.