KUALA LUMPUR: Malaysian property owners selling their assets in Australia could face significant financial challenges due to current tax regulations and changes that will come into effect in January next year.
The Australian Tax Office (ATO) will implement two significant changes for foreign resident capital gains starting Jan 1, 2025.
The withholding rate for properties sold will increase from 12.5% to 15% and apply to all property sales, regardless of price. Currently, the withholding rate of 12.5% applies only to properties sold for A$750,000 (RM2.17 million) or more. The 15% rate will apply to all property transactions, even those below A$750,000, from Jan 1.
This means that 15% of the sale price will be withheld for tax purposes on every property sale involving a foreign resident, no matter the property’s value.
The change will affect all investors who choose to sell, including those who attempt to quickly offload their properties due to unbearable land tax and surcharges.
Almost 94% of overseas property owners, particularly Malaysians, are unaware of these tax obligations.
International taxation specialist at TJD Accounting Australia principal accountant Dominic Murphy said if a property owner sells property for A$600,00 after 2024, A$90,000 of tax will be withheld from the owner by the ATO.
“Many foreign property owners are caught off guard, and we advise them to file tax returns from the property’s purchase date to reclaim these withheld taxes. This involves applying for an Australian tax file number and backtracking to file returns for each year of ownership, which is a long and tedious process, especially for those who did not understand these requirements at the time of purchase,” he told SunBiz.
The new withholding tax rate will likely create an additional financial burden to property owners, including many Malaysians who own properties in Australia.
According to a statement on the Australian Treasury website, the Albanese Labor Government is implementing significant new measures to strengthen the integrity of the capital gains tax rules for foreign residents in its efforts to ensure foreign residents contribute their fair share of taxes.
Treasurer Dr Jim Chalmers said, as announced in the Mid-Year Economic and Fiscal Outlook and Budget 2024–25, these changes will ensure foreign residents comply with their tax obligations in Australia and complement the government’s initiatives to improve housing affordability for Australians.
“The government will also bring our foreign resident capital gains tax rules in line with international best practice by aligning the treatment for non‑residents more closely with those that already apply to Australian residents. Foreign residents will be required to notify the ATO before the transaction occurs when they dispose of certain high‑value assets so the ATO can make sure that tax is appropriately paid in Australia,“ Chalmers said.
Murphy pointed out that the upcoming adjustments to withholding tax and the complexities of land tax rates may have serious financial consequences for Malaysian asset owners, potentially leading to higher costs and penalties if not properly managed.
In Victoria and New South Wales, land tax surcharges of up to 4% could significantly raise tax bills by tens to hundreds of thousands of dollars. Additionally, absentee rates may be reassessed, potentially leading to up to five years of back taxes.
Murphy said foreign property owners will have to pay land tax, if applicable.
He said local state governments may still reassess property owners’ status if the information reveals that the investor is not an Australian resident.
“If the state government discovers that a property owner is a resident overseas, it will reassess them at a higher rate.
Those who have owned the property for some time will be reassessed for the last five years, usually at the absentee rate. That’s when significant penalties can kick in.”
Murpjy said state revenue offices assess these taxes annually, using ownership data as of specific dates, such as Dec 31 or June 30. Payment deadlines vary by state, and failure to comply can result in penalties and fines, adding to the already high tax charges. This has sometimes resulted in distressed sales due to excessive tax liabilities.
“We had clients come to us with reassessment tax bills ranging from A$60,000 to over A$100,000. They are shocked as they have been unaware of their tax status for years.”
The upcoming increase in withholding tax will add to these challenges, Murphy said.
