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A bureaucratic glitch could put Australia’s spring home buyers at risk of losing hundreds of thousands of dollars on settlement, a tax expert has warned.
Murray Howlett, partner at accounting firm Pilot Partners, has identified an ‘inconsistency’ between the ATO’s online application system for clearance certificates and the new withholding tax law’s requirement for having one – and said it is leaving home buyers vulnerable to a whopping 10 per cent tax liability.
“While the law clearly states that a certificate must cover the date the contract is entered into, the ATO’s online system will automatically issue a certificate dated from the day of processing,” explained Mr Howlett.
Therefore, he said, certificates issued for sellers whose land is already under contract will not provide protection from the new tax.
Mr Howlett also warned that the ATO’s administrative guidance (that the certificate will be valid if it covers the settlement date) is not binding by law.
He said the tax office is looking to increase revenue and that this is a 'smoking gun': “If you are relying on the administrative guidance then you’re playing a risky game. You think you’re covered but you’re not.”
He said it is still possible to get a valid certificate – but it would mean working around the ATO systems.
The new national property withholding tax law came into effect on 1 July this year, for transactions involving real estate valued at $2 million or more.
It requires all affected vendors to obtain a residency clearance certificate from the ATO to avoid a compulsory 10 per cent withholding tax on the sale price.
[Related: The spring selling season tactic that could cost you thousands ]
