Property Purchasers – The new government compliance officers and tax collectors!

Property Purchasers are increasingly becoming “outsourced” government compliance officers and  tax collectors.

In 2016, the NSW State and Federal governments came to the realisation that foreign persons were buying property in Australia, owning that property for many years – without declaring (and paying tax on) the rental income. Eventually the property would be sold realising a substantial capital gain. The sale proceeds were then transferred out of the country.

During this period, the government had no idea that the property had actually been  bought and sold by a non- Australian citizen or Permanent Resident. How come? One reason why this situation came about was  because developers of new residential property could obtain pre-approval from the government to sell a proportion of each development to “foreign” owners. There was no requirement for further Foreign Investment Review Board (FIRB) approval or reporting.

As such, the prospect of the government later collecting  capital gains or accumulated income tax on the property investment was impossible. The money was gone!

State government initiatives

The NSW state government came up with a number of new initiatives

(effective June 2016)

• all persons acquiring property in NSW had to sign a declaration confirming Australian citizenship or residency and provide evidence. The declaration provides other information – such as the purchaser’s intention for the property (will it be owner occupied or rented out?)
• an additional purchaser “surcharge” duty on residential property being bought by foreign owners. When introduced this was 4% on the purchase price of the property. It was increased to 8% in 2017 and has this year been increased again to 9%.
• an annual .75% land tax surcharge of the taxable value of residential land owned by a foreign person in any year. This surcharge land tax rate was increased to 2% (2018), 4% (2023) and to 5% (2025).

Other state governments have implemented similar policies.

The then Premier made no apology for the fact these were purely revenue raising initiatives.

To put this into perspective, if a foreign person were to buy a residential property in NSW in 2025 at (say) $1,000,000 (and the land value of that property is $500,000) then that person would pay a stamp duty surcharge of $90,000 (in addition to the usual stamp duty of $39,569). The Land Tax surcharge would be $25,000 per annum – increasing annually as the property value increases.

There are a few subtle distinctions which may make a person, who thinks they are a “permanent resident”, still liable for these surcharges. One such qualification is the “200 day rule”. This person must have been in residence in Australia for no less than 200 days in the year prior to purchasing property.

And the NSW Revenue office does check!

With sophisticated data checking algorithms now available the NSW Revenue Office seem to be able to check a person’s movements through departure/arrival portals. It is quite likely that such a purchaser would be contacted by the NSW Revenue Office some months or years later and be assessed for the surcharge stamp duty, land tax and penalties.

This highlights the critical importance of obtaining qualified advice from a conveyancer/solicitor before entering into any contract for the purchase of property. It is, of course, incumbent upon that professional to ensure that every box has been “ticked” when advising on such matters.

The Professional Indemnity insurer for conveyancers has reported a dramatic increase in claims related to either incorrect advice or no such advice being given in such circumstances.

Federal government initiatives

“Foreign Resident Capital Gains Withholding” (FRCGW) .

In 2016 the Federal Government came up with a concept known as “Foreign Resident Capital Gains Withholding” (FRCGW) . It then applied to real estate transactions over $2 million. A seller was required to apply for a “qualifying clearance certificate” from the ATO, certifying that no anticipated capital gains tax was to be retained from the sale proceeds.   This certificate was to be provided to the purchaser prior to settlement. If no such certificate was provided 10% of the sale price of the property was required to be withheld from the purchase moneys by the purchaser, regardless of the vendor’s residency status, and remitted to the ATO.

Initially this affected very few transactions and was rarely required.

From July 2017, this changed. From that date all vendors selling property over $750,000 were required to provide for a “qualifying clearance certificate”. The FRCGW tax rate also increased to 12.5%.

On 1 January 2025 the regime changed again. The withholding rate increased to 15% and the withholding rules now apply to all property sales – irrespective of whether the sale is by a foreign owner – or not.

The “bite in the tail” is that, if a purchaser neglects to withhold the (15%) amount (ie pay the full purchase price to the seller) then the purchaser is liable to the ATO personally for the full amount that should have been withheld.

GST withholding

When a developer sells property that they have built the sale is subject to the payment of GST. A purchaser is often unaware of this because the GST is usually just part of the purchase price. The developer is required to remit this GST to the ATO when they next submit a Business Activity Statement.

In 2018 the Federal Government woke up to the fact that a number of developers were collecting GST on the sale – but not remitting this GST to the ATO. By the time the ATO became aware of this they discovered that the development company had actually been placed in administration or liquidated,

The government’s solution to this situation was to shift the obligation for payment to the purchaser.

The purchaser is expected to know when the sale is subject to the payment of GST, retain that amount from the price at settlement, and remit this to the ATO.

As with the FRCGW, if a purchaser neglects to do so, then the purchaser is personally liable to the ATO for the full amount which should have been withheld and remitted – plus a substantial penalty.

All of these new provisions have exposed property purchasers to the possibility of substantial financial penalties. There has never been a more important time to ensure that advice from a specialist conveyancer or solicitor is obtained – to alleviate such exposure.

What’s next – monitoring of money laundering

The Federal government has identified the purchase of real estate as a significant vehicle for the laundering of illegal funds.

Consequently, the government is currently finalising  a procedure for conveyancers and solicitors to monitor and report suspicious money transactions.

These are expected to come into effect in June 2026.

Conveyancers and solicitors will be required to enrol with the Australian Transaction Reports and Analysis Centre (AUSTRAC).

No firm guidelines have yet been issued as to what conveyancers and solicitors will be required to report. It can be safe to assume that any funds arriving in  a trust account from overseas will be reportable. Whether or not a monetary amount on other funds will be reportable, is not yet known.

It has been suggested that the new regulations will contain significant, even criminal, repercussions for a practitioner’s failure to make such reports.

Many conveyancers and solicitors will certainly be uncomfortable reporting payments of their clients (who may have been clients for many years and their integrity is unquestionable).

These new regulations are currently in the consultation phase. Let’s hope that sanity will prevail – and the administrative burden will not be excessive. If not, the complexity of buying and selling property and conveyancing costs can only continue to increase.

WRITTEN by Paul Denny

Paul denny has over 45 years conveyancing experience and has assisted over 30,000 clients with their property transactions.

Contact us today on 0419 401 750 or email info@bowralconveyancing.com.au to discuss how we can assist you with your conveyancing needs