Contributed by Karina Foo

If you are selling your property in Australia, whether resident or non-resident, you must obtain an Australian Tax Office (ATO) clearance certificate effective Jan 1, 2025. This certificate is now mandatory to avoid the 15% withholding tax on all property transactions, up from the previous 12.5% only for properties sold at A$750,000 (RM2.1mil) or more.

However, amidst these challenges, there is a potential avenue for relief through variation notice applications. TJD Accounting Services international tax specialist Dominic Murphy explained: "While the new 15% withholding rate seems daunting, Malaysian investors should be aware of the variation notice option. In some cases, this may reduce the withholding amount, offering some financial breathing room.

"You could get the variation if you had no capital gain on the transaction, reduced your income tax liability, or have existing mortgages on the property. Malaysian investors should engage with a qualified accountant to calculate and see if they are eligible for the appropriate reduced rate.”

Key points about variation notices include:

• They allow foreign residents to request a reduced withholding rate
• Foreign investors may be eligible if they had no capital gain
• Applications should be lodged as soon as the sales contract is signed
• Processing can take up to 28 days
• Approved variations must be provided to the purchaser before settlement

More taxes

The Foreign Resident Capital Gains Withholding (FRCGW) rate has seen a significant increase, now standing at 15% for all property sales, regardless of their value, as per previously 12.5% for property sales from A$750,000. This new rate applies to transactions from Jan 1, 2025, marking a substantial change in the tax obligations for foreign property owners.

“To illustrate the impact of these new tax regulations, CY, a Malaysian client purchased a property in Victoria for A$600,000 in 2022. He is looking to sell it in July 2025 for around A$650,000 due to a change in family plans. Under the new rules, the capital gain would be A$50,000 resulting in a capital gains tax of approximately $15,000. However, the new 15% withholding tax would require A$97,500 to be withheld from the sale price of $650,000,” explained Murphy.    

This scenario highlights a significant cash flow issue for CY especially because he is a retiree.  He would have A$97,500 held by the ATO for up to 12 months until he files his tax return, despite only owing A$15,000 in actual taxes. 

“This is where a variation notice becomes crucial. If the investor has kept their tax returns up to date, their accountant can better estimate the sales proceeds and apply for a variation,” says Murphy.

This could significantly reduce the amount withheld, freeing up cash that would otherwise be inaccessible for an extended period.

However, timing is critical. Variation applications must be done quickly, just before settlement. The key is that investors cannot apply for variations until they have completed their tax returns and they can not file tax returns without an Australian Tax File Number (TFN)

While CY’s case illustrates the impact of the new withholding tax, it's important to note that other tax changes are also affecting Malaysian property owners in Australia.

In addition to the FRCGW rate increase, land tax burdens have been escalating across various states. Victoria has implemented a 4% absentee owner surcharge, along with a 1% Vacant Residential Land Tax. 

New South Wales has increased its land tax surcharge to 5%, while Queensland has introduced significant annual payments for absentee owners. These changes have dramatically increased the ongoing costs of property ownership for Malaysian and foreign investors.

Furthermore, the reduction in land tax thresholds has broadened the impact of these taxes. In Victoria, the threshold has dropped dramatically from A$350,000 to A$50,000. This change means that many more property owners, particularly those with apartments or units, are now subject to land tax obligations that they were previously exempt from and the financial impact can be stark.

Murphy said: "While variation notices may relieve the withholding tax, they don't address ongoing land tax issues. Malaysian investors need a comprehensive strategy against these challenges. We have witnessed many Malaysians who've come to us with years of outstanding tax returns. This could pose significant problems in the near future, especially if they are planning to sell their property.”

Next steps

“I would suggest whether selling or not, to obtain a tax file number in person at the Australian Consulate in Malaysia and then submit all outstanding tax returns from the year you bought the property. This is important for two reasons: The first is that the ATO carries out random audits every year and the penalties for being caught for not being up to date with your tax obligations are severe. 

“Second is that if you’re not up to date with your taxes, it will delay any possibility for a variation notice. If suitable, consider ownership transfer options and get assistance in applying for variation notices when selling your property”, advised Murphy. 

Seek professional advice to understand your obligations and explore the discussed strategies that may help you, he said.

Karina Foo is the marketing advisor of TJD Accounting Services and is based in Australia.

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