BY Chris Prasad
Australia’s position as a choice investment destination for Asian property seekers has come under threat following the introduction of a new ruling by the Australian Tax Office (ATO). The new ruling stipulates that for properties valued at more than AUS$2 million (RM6.06 million), 10 per cent of the purchase price must now be paid to the ATO.
While this rule is limited to the higher end of the buying scale, The Australian newspaper recently reported that Chinese and Asian buying of Sydney apartments have already fallen 50 per cent in the weeks following the implementation of the new tax regulation.
Chinese buyers, in particular, have been driving transactions of up market properties in major Australian cities and contributing to the growth of the sector, but the decline in interest is now palpable, said long-time business columnist for The Australian Robert Gottliebson.
He pointed out that in addition to curbing foreign interest in the property market, the new ruling also has repercussions for local buyers. The ATO regulation stipulates that all Australian sellers of $2m-plus properties will be classified as overseas investors unless they get a special tax clearance. That means that all buyers of AUS$2m-plus properties must deduct 10 per cent from the purchase price and pay that amount to the Australian Taxation Office (ATO) unless the seller has a tax clearance.
Gottliebson said thousands of real estate agents and property owners in Australia are about to get “a terrible shock” when they deal in properties valued at more than AUS$2 million. The current “mess”, he said, was created when former treasurer Joe Hockey caved into pressures to curb Chinese investment in Australian residential property in 2015. In the process, the treasurer was convinced by the Australian Taxation Office to widen the net to cover local residents.
Now, if you purchase a property worth $2m or more after July 1 2016, you will be required to withhold 10 per cent of the purchase price and remit it to the ATO unless the vendor is able to provide a special purpose tax resident’s “clearance certificate” from the ATO.
It does not matter if the vendors were born in Australia and have lived all their lives in Australia — unless they have that clearance certificate, they are classed as a foreigner and the buyer must send 10 per cent of the purchase price to the tax office.
The definition of property is wide and includes leaseholds, but does not include stock exchange investments. A purchaser who does not receive a “clearance certificate” from the vendor and does not send 10 per cent of the purchase price to the ATO will still be liable to pay that 10 per cent and will probably have to pay severe additional penalties and interest.
Gottliebson said the economics of buying the property will be severely damaged as a result, and it is uncertain how the new regime will impact businesses and existing contractual obligations.
For example, banks and other financiers may be affected where their secured debt exceeds 90 per cent of the value of the selling price. In a situation where the owner is being forced to sell, it will be better for banks to take possession and sell themselves rather than be caught in “tax clearance” delays.
Outside of the local impact, Gottliebson said the legislation is yet another blow that has been aimed at Chinese and other Asian property investors. A series of legislations have been implemented separately to cool overheated interest in Australian property, and while each one has had reasonable motivations, in combination, they could inflict severe damage to the residential property market.
“Chinese investment in property has saved us from the worst effects of the big fall in the mining investment boom. But look at what is happening now… money is now harder to bring into Australia from China, local banks are imposing a credit squeeze on Chinese buyers, and on July 1, the Victorian state government raised the levy on foreign purchases of apartments from 3 per cent to 7 per cent,” he said.