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Changes to tax laws will result in lawyers and conveyancers turning into tax collectors and having the power to influence more than 60 per cent of the property market, a tech firm CEO has claimed.
From 1 July, changes to legislation will limit capital gains tax (CGT) exemptions for foreign and temporary residents, and increase withholding rates for foreign tax residents.
GlobalX CEO Peter Maloney says the new rules will mean lawyers and conveyancers will become more involved in the settlement process and will effectively have to act as tax collectors.
“Currently, all property transactions worth more than $2 million require 10 per cent of the purchase price to be withheld and transferred to the ATO,” Mr Maloney said.
“The only way to avoid this tax is for a vendor to obtain a clearance certificate that states they are not a foreign resident.
“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.”
Mr Maloney said increasing the foreign resident capital gains withholding tax rate from 10 per cent to 12.5 per cent will raise approximately $581 million in tax revenue.
“Lawyers and conveyancers will play a crucial role in these high-value transactions and are essentially collecting revenue for the government,” he said.
“In the absence of a public awareness campaign by federal government, it is being left up to legal professionals to advise their clients of the withholding threshold and the importance of obtaining a certificate of clearance.
“As well as the added responsibility that comes with this, the new process will create more red tape and paperwork for lawyers, conveyancers and their clients. For example, we estimate only 11 per cent of Australian properties were caught in the $2 million threshold, but lowering it to $750,000 will now burden 64 per cent of properties.”
The changes are also predicted to affect auctions. Using the example of auction results in Sydney during the weekend of 27 and 28 May, only 44 of 836 properties sold for less than $750,000. This means that 95 per cent of auctions would be impacted by these changes.
Mr Maloney added that the current confusion around clearance certificates will further complicate the selling process.
“Australians will not understand why they require a clearance certificate, and whilst all other parts of the property value chain are being digitised, this tax-raising compliance exercise means more time will be spent on settlements, and even increased costs for buyers and sellers,” he said.
President of the Australian Institute of Conveyancers, Santina Taranto, also weighed in, saying Australian residents who sell properties without a clearance certificate will be treated the same as a foreign seller.
“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.
“That means the money withheld during settlement will be paid to the ATO and the vendor will not receive the full payment for the property.
“In most cases, you can expect to receive a clearance certificate in less than a fortnight. However, in case there are complications, buyers should apply for the certificate immediately to avoid missing out on their dream home.”
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