- Federal Budget 2017: Foreign home buyers hit by vacancy tax and restrictions
- Treasurer Scott Morrison orders forced sale of $10m of property
Homeowners and real estate agents have been left in the dark about small and little-known change in the 2017 budget that property industry experts warn will affect a huge proportion of the market.
Currently, vendors whose properties are sold for $2 million or more are required to submit a clearance certificate proving they are not a foreign investor. If they fail to do this, 10 per cent of the purchase price is withheld from the seller and given to the Australian Taxation Office.
This new rule is likely to affect 60 per cent of the Australia-wide property market compared to 11 per cent under the old rules, legal information broker company GlobalX chief executive Peter Maloney said.
And even worse – he believes few vendors know about the new requirement.
“There has been no communication to citizens from the federal government,” Mr Maloney said.
“It’s a subtle one-line change and people aren’t aware of it … So many people are going to get caught in this process.”
An analysis of Domain Group auction data for the last weekend of May found just 44 of 836 properties sold for under the threshold amount.
In Sydney, there are 395 suburbs where at least half of the houses cost more than $750,000 and 126 suburbs with apartments in the same price range.
“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.
Real Estate Institute of NSW chief executive Tim McKibbin agreed it was likely to capture the majority of the harbour city’s homes.
“[There is] a lot more work involved from the solicitor and conveyancer point of view, and more work means more delays. It has the potential to interfere with the conveyancing process,” Mr McKibbin said.
“It’s basically turning conveyancers and lawyers into tax collectors. That’s not what the conveyancing process should be about.”
He said he wouldn’t be surprised to see more buyers requesting to see the clearance certificate before signing a contract to ensure no delays would occur around settlement time.
Many vendors are unaware about the upcoming change, including Jessica Farah, 37, whose 54 Carlotta Street, Greenwich home is coming onto the market.
Her property goes to auction on July 1 and she was unaware there was any change in the rule to prove she isn’t a foreign investor.
“I’m perplexed as to why it is a responsibility that falls onto the vendor,” Ms Farah said.
“I had no idea that I was required to do this.”
While she had no issue with the government looking into foreign investment and tightening up the regulations, she was surprised the onus was now on the majority of sellers.
It’s likely this obligation will also cost sellers more, said selling agent for the home, Richard Baini director of Strathfield-based Richard Matthews Real Estate.
He said the costs of the additional compliance would “without a doubt” be paid by the vendors through increased legal fees.
“Solicitors charge by the hour – some charge by the email – so it’s the vendors who are going to end up paying more.”
Richardson & Wrench Mosman/Neutral Bay director was also unaware about the changes and said it was “outrageous” they were not given any official notice.
While the responsibility is with the conveyancer or lawyer involved in the transaction, he said there should have been more information given to real estate agents.
Australian Institute of Conveyancers president Santina Taranto said most homeowners could expect to receive a Clearance Certificate in less than a fortnight after applying. This would be given to anyone who was an Australian resident for tax purposes.
“If you fail to obtain a Clearance Certificate, even if you are an Australian resident, you will be treated as a foreign resident. It’s really a situation of ‘foreign’ until proven otherwise,” Mrs Taranto said.
The budget papers describe the tax change as a plan for “improving the integrity of capital gains tax rules for foreign investors” and to reduce the avoidance of capital gains tax by foreign buyers.
The changes are estimated to gain about $600 million in revenue over the forward estimates.
The NSW government has announced additional fees for foreign investors, including increasing the surcharge from 4 per cent to 8 per cent and hiking land tax from 0.75 per cent to 2 per cent.
Sourced www.domain.com.au June 19 2017