Buying a home to live in is part of the Australian dream and has historically been supported by the government by allowing any principal place of residence held by an Australian to be capital gains tax (CGT) free. That allowance historically continued for a period of up to six years from the date the property is no longer a person’s principal place of residence, provided the person did not claim another property as their principal place of residence.
That historical position started to shift in relation to foreign residents on 1 July 2016.
From that date when selling Australian residential land, if the sale price exceeded $2 million and the Purchaser was not provided by the Vendor with a Foreign Resident Capital Gains Clearance Certificate from the Australian Taxation Office (ATO), the Purchaser had to hold back from the Vendor 10% of the purchase price and send it to the ATO. These rules changed on 1 July 2017 so that they now apply where the sale price exceeds $750,000.00 with the amount to be held back and sent to the ATO increased to 12.5% of the sale price.
A new Bill proposing capital gains tax changes to the main residence rules for foreign residents has passed through the Lower House of the Parliament and is currently before the Senate. This Bill combined with the withholding rules set out above will have a substantial impact on foreign owners of Australian residential real estate. The Bill, if passed by the Senate, will apply to remove the capital gains tax (CGT) exemption on disposal of a main residence for individuals who are nonresidents at the time of disposal.
If a home is sold while the owner is a nonresident then the sale would cause the new rules to apply on the disposal of the main residence with the entire gain subject to CGT, no matter what the previous residential status of the seller was for GST purposes.
There is some temporary relief for those people who are foreign residents. A transitional rule allows the CGT exemption to continue to apply for disposal of a home that happens on or before 30 June 2019, if the home was owned prior to 9 May 2017. After that grace period the CGT exemption no longer applies. For example, If the owner of a home is overseas on assignment, not expecting to return before the 30th of June 2019, then that owner should consider carefully whether they wish to dispose of the home prior to the 30th of June 2019 to take advantage of the CGT status of the property. These changes will only apply if the owner of the home is a non-resident at the time a contract to sell the property is entered into.
A nonresident who inherits a resident’s former main residence will also be affected by these rules. If as a nonresident you dispose of the inherited interest within two years after the date of death, no CGT will be payable, but if the interest is disposed of after the two year period then the new rules will apply to you and only the period up to the date of death will qualify for the CGT exemption.
These rules also apply to:
joint holdings where one of the joint owners is a nonresident
a main resident owner dies while a non-resident of Australia.
As the rules currently apply to the foreign residence status of the owner at the time of dispose of the property the loss of the CGT exemption can be cured by change of the status of the owner of the property to be an Australian resident again at the time of the disposal of property.
If you are a foreign resident with property in Australia you should consider carefully whether you are likely to return to Australia as a resident before your intended disposal of the property. If that is not the case you should consider disposing of any Australian held property prior to 30 June 2019.
Similarly if you are an Australian resident with beneficiaries of your will who live outside Australia now might be a good time to review your will to make sure the Capital Gains Tax changes will not affect your estate when you die.
If you have any questions on the Capital Gains Tax changes for foreign residents, then please contact our property team on 02 8987 0000.
Australians have embraced the sharing economy with gusto and nowhere can that be seen more clearly than the rise of Airbnb. In Sydney alone there are over 38,000 listings on the website. But using Airbnb or Stayz to rent out part or all of your home as a home owner you may be unwittingly opening yourself up to tax liabilities. In particular:
- Tax on the income earned; and
- Putting at risk your Capital Gains Tax exemption for your principal place of residence and opening yourself up to Capital Gains Tax when you sell the property.
While renting your home, or part of it, may supplement your income and satisfy a positive social experience by having overseas visitors in your home, you may find if you live in an area where the value of your home has increased markedly that the Capital Gains Tax you may be liable for could well and truly outweigh any income you receive from renting your home or part of it.
ATO and Airbnb Sharing Data
The Australia Taxation Office has mechanisms in place to track people who are renting their home and you may well find the Australian Tax Office calls upon you to either disclose the income you have received and pay income tax on the income or Capital Gains Tax. These tracking mechanisms could also catch you when you sell the property. The ATO and Airbnb are sharing data so the threat is very real. If you are listing on Airbnb you may well be held to account over the income you are generating.
You should therefore clearly seek advice from your accountants and lawyers before you enter into any short term leasing arrangements on sites such as Airbnb and Stayz so you are fully aware of your liabilities to disclose the income and pay tax on it and to how the potential Capital Gains Tax may affect you when you sell the property.
Should you have any queries about the implications of the ATO and Airbnb sharing data, then please do not hesitate to call Julian Peters of our Property Team on 02 8987 0008 or by email to JPeters@aitkenlawyers.com.au
The Federal Government is planning to bring into effect on 1 July 2018 the terms of a Bill which is currently before Federal Parliament (Treasury Laws Amendment (2018 Measurements No. 1)) (Bill). The bill centres around a proposed change to GST for property developers, making purchasers the collectors of GST on development sites.
The Bill is designed to overcome difficulties with the collection of GST resulting from Developers who have collected GST on the sale of properties (the GST being included in the sale price, for example where the margin scheme is used) allowing those companies to go into liquidation without having remitted the GST collected to the Australian Taxation Office. Whilst this unscrupulous practice seems to have only been conducted by a small number of participants in the Development Industry, the Federal Government believes that it is a practice that needs to be stamped out. A number of Industry bodies have made submissions to the Federal Government concerning the Bill, however if the Bill comes into Law, the GST system will be changed so that the settlement process will involve:
- The GST component of the Sale Contract needing to be calculated clearly and identified within the Contract;
- The liability to remit the GST to the Australia Tax Office will change from the Seller to the Buyer even though the ultimate liability remains with the Seller;
- The GST will need to be remitted at or before Settlement; and
- If the Seller is using the margin scheme a 1/11 of the GST must be remitted with the GST difference, then reclaimed as part of the Sellers normal BAS cycle.
We understand that a rapid refund process is being considered but no detail has been provided to date.
Proposed change to GST for property developers
Should this new Legislation be approved then the result will be a significant impact upon Sales and Settlement processes for Developers and their cashflow.
A number of questions arise from this proposed Legislation and we will need to update our clients, both Sellers, Purchasers and Developers as to the changes when they come in and the mechanisms to be applied.
Should you have any concerns about the proposed change to GST for property developers or if wish us to make any submissions on your behalf then please do not hesitate to contact Julian Peters of Aitken Lawyers Property Team on Tel: 02 8987 0008 E: JPeters@aitkenlawyers.com.au.
You make be questioning if you really need a solicitor to sell your home. Often our home is our most important asset and a solicitor is trained and experienced to ensure the sale goes the way that it is intended. At Aitken Lawyers we have 40 years experience selling homes and to make life a bit easier for you we’ve prepared a “Checklist for Selling a House”.
Before you place a residential property on the market there are a number of things you need to do:
- Select an agent (if you are to use an agent to represent you to sell the property) and negotiate the terms of the selling agency agreement with that agent;
- Have a lawyer prepare the contract of sale as it is necessary in respect of a residential property and a requirement under the law to have a contract of sale available for inspection by prospective purchasers before the property is marketed and have that lawyer prepare that contract of sale;
- Advise the lawyer of any necessary provisions that need to be included in the contract. For example:
- The date that you wish the contract to be completed (in NSW this is usually 42 days after the contract is entered into);
- Details of all the improvements on the property including if it has a swimming pool;
- Whether the property is your principle place of residence, and if not whether you want Land Tax to be adjusted if you are paying Land Tax.
- Have the lawyer obtain a Land Tax Certificate for attachment to the contract;
- Have the lawyer or yourself obtain the Foreign Capital Gains Tax Clearance Certificate from the ATO (if applicable);
- Provide necessary identification documentation to your lawyer so they can properly identify you as the seller of the property;
- Provide to the lawyer, if you have them, Building Certificate, Occupation Certificate, Identification Survey and any other pertinent documentation relating to the property you are selling and any renovation or alteration thereto to be included in the contract.
- Advise your lawyer or conveyancer whether you have a Pest Report or Inspection of the property, which can be included in the contract.
This “Checklist for selling a house” has been prepared by our property team with over 40 years’ experience assisting with property sales. If you are preparing to sell your home please contact our property team on 02 8987 0000 or by email at firstname.lastname@example.org.
The Strata Schemes Management Act 2015 and the Strata Schemes (Freehold Development) Act 2015 are applicable in New South Wales. These acts commenced on 1st July 2017. The Strata Schemes Act 2014 replaced the Strata Schemes Management Act 1994 and brought in a number of changes which are:
- A limit to the number of proxy votes a person can hold;
- Developers are required to lodge a security bond equal to 2% of the Contract price to cover the costs of any work required to rectify defective building work by the Developer. The bond must be either paid out or refunded not later than 2 years after the completion of the building work;
- Developers are also required to arrange for building work to be inspected by an approved building inspector no later than 12 months after completion;
- If majority of lots in a scheme are tenanted, tenants will be able to sit on the strata committee, but not vote;
- With regard to proposals for the sale or redevelopment of strata schemes, the strata committee must consider the proposal and determine whether or not it warrants further consideration. Where such a proposal is considered to warrant further consideration, a renewal committee must be appointed, a general meeting must be arranged to consider the proposal and the ‘required level of support’ to pass such a proposal will only be ‘at least 75%’, rather than 100%;
- Owners will be permitted to carry out ‘minor cosmetic work’ without the prior authorisation of the Owners Corporation;
- Owners will be permitted to carry out ‘minor renovations’, which includes renovations to kitchens, bathrooms, light fittings, installing or replacing hard flooring and installing or replacing cabling, wiring or access points, after they have been provided approval by the Owners Corporation at a general meeting;
- The by-laws for a scheme will be able to limit the number of persons who reside in a lot, but not to less than 2 adults per bedroom;
- higher monetary penalties apply where by-laws are contravened;
- Electronic forms of communication are acceptable with regard to records and updates
The new strata legislation came into effect in July 2017. If you have any questions on this legislation, please contact our property team on 02 8987 0000 or by email at email@example.com.