What do new foreign resident capital gains withholding laws mean for real estate agents?

03 June 2016

Matthew Laming , National Leader, Business Services |

New changes to real estate sales valued at or above $2 million could impact agents. How can BDO's services help you manage the changes?

The first of July this year will see some important changes in the real estate market. The new developments will demand extra planning from real estate agents to minimise disruption and ensure they're on the correct side of the new regulations.

The new legislation introduced in February 2016 relate to Australian resident vendors who sell property with a market value of $2 million or more. In these cases, vendors will need to obtain a clearance certificate from the Australian Tax Office (ATO). If the vendor is unable to secure this clearance, the purchaser will be obliged to withhold 10 per cent of the sale price and pay that directly to the ATO.

While it's the vendor’s obligation to obtain the clearance certificate, agents need to be aware of the updated regulations and what it may mean for the sale transaction.

Awareness is the key 

Because it's up to the vendor to pursue their clearance certificate and the purchaser to withhold the correct portion of the purchase price, these conditions could create further difficulties for agents as the negotiator of the transaction. According to Private Clients Partner, Matthew Laming, the most significant impact is likely to be the extension of settlement times as vendors get to grips with the new regulations.

"We see a lot of 'subject to' contracts in Australia, and I see that these regulations are likely to be one of the conditions that will be written into contracts," Matthew explains.

"If vendors or their agents aren't organised, it's going to hold things up."

Another reason awareness is such a critical factor is because it could also impact cashflow management for real estate agents. There is now more paperwork for people looking to sell at or beyond the $2 million mark, which may mean the administration process creates the properties being on the market for longer, so cashflow to the agent is not as readily available as it could be.

While the online process is expected to be fairly instantaneous, those properties with irregular conditions or data may take longer while they're investigated.

How can BDO help?

The extra conditions posed by the new regulations could challenge some vendors or agents, especially as they require more communication between the parties involved. BDO can help to facilitate these interactions and ensure vendors have correctly applied for clearance certificates or purchasers are aware of withholding the correct amount of tax.

One of the most critical ways in which BDO can help real estate agents involves cashflow management - something that will grow in importance as settlement times potentially increase.

"We do a significant amount of business planning and forecasting with real estate businesses, and this will continue to be an integral part of business management going forward," Matthew says. "Even a 5 or 10 day delay in settlement is going to have a significant impact on cashflow, so planning is important."

The upcoming changes are only likely to be disruptive for agents that aren't prepared, so by staying on top of these developments and engaging with a firm such as BDO, they can continue to operate effectively.