Written by Stefan Kostarelis
Many homeowners and real estate agents are just becoming aware of a change in the 2017 Budget that is likely to affect a huge section of the market.
The new rule is part of the government’s effort to tighten up regulations on foreign investment. It will reduce the threshold for foreign resident capital gains tax from $2 million down to $750,000.
Under current regulations, a vendor whose properties are sold for $2 million or more are required to obtain a Clearance Certificate that proves they are not a foreign investor. If the vendor is unable to do so, 10% of the purchase price is withheld and given to the Australian Tax Office (ATO).
But as of July 2017, vendors of homes worth more than $750,000 will have to prove they are not foreigners, with 12.5 percent withheld instead.
GlobalX CEO Peter Maloney told “Real Estate Talk” host Kevin Turner that tax changes are likely to have an impact on as much as 60% of the property market.
In a statement, Maloney pointed out that the legislation change would give lawyers and conveyancers extended powers as they essentially take on the role of tax collector during the property settlement process.
“With these changes lowering the property value threshold from $2 million to $750,000, more lawyers and conveyancers than ever before will be burdened with this administrative process,” he said.
He estimated that the increase from 10 to 12.5 percent would raise an additional $581 million in tax revenue.
“For example, we estimate that only 11 percent of Australian properties were caught in the $2 million threshold, but lowering it to $750,000 will now burden 64 percent of properties,” Maloney said.
Maloney conducted a review of Sydney’s auction results and found that just 44 out of the 836 properties sold for less than $750,000.
And he isn’t the only one critical of the legislation change.
The Real Estate Institute of Australia (REIA) released a statement on Monday which called the new amount “unnecessarily low”, adding that agents “will be subject to additional red tape and costs for no valid reason”.
“If the threshold was to be reduced it should be no less than $1.5 million,” said REIA President Malcolm Gunning. “Based on data in the latest Foreign Investment Board Annual Report, 76 percent of foreign purchasers bought in NSW and VIC, and the average purchase price was $1.6 million.”
Gunning also feels that the government has not given the REIA enough time for an education campaign.
“When the withholding tax was first introduced it applied to far less property and involved far fewer markets, yet far more time was available for the REIA to work with the ATO in educating agents,” Gunning said.
“This isn’t simply a case of letting agents know of a new threshold. There is a whole new set of agents in additional markets involved. A delay by six months would be more appropriate and introducing it part way through a financial year should be acceptable as the withholding tax was first introduced in the middle of a financial year.”
It seems that the government has not been forthcoming in telling people about the new rule and that many overlooked it in the reading of the Budget.
One vendor who has been caught by surprise by the new rule is Jessica Farah, whose 54 Carlotta Street Greenwich home goes to auction on July 1st. She told Domain that she was unaware there was any change and “perplexed” as to why it was the responsibility of the vendor.
The REIA has contacted Treasurer Scott Morrison regarding its opposition to the new threshold and has asked the government to reconsider.