Capital Gains Tax (CGT) Withholding Requirements

What is it?

The new Capital Gains Tax (CGT) withholding regime is a federal government tax initiative introduced to assist the Australian Taxation Office (ATO) in recovering CGT from foreign residents who sell or dispose of (amongst other things) real property in Australia.  This includes land, buildings, residential and commercial property (including options or rights to acquire those properties or interests).   Where the vendor of a property is a foreign resident and the market value of the property is equal to or greater than $2,000,000, the purchaser is required to withhold 10% of the purchase price and remit that amount to the (ATO) at settlement.

Does it apply to you?

Both vendors and purchaser must be aware of their new obligations for property transactions and the serious implications for both if they fail to comply with those obligations.

The new regime applies to contracts of sale for land entered into from 1 July 2016 where the market value of the property is equal to or greater than $2,000,000.

What must you do?

In order to avoid having the purchaser withhold 10% of the purchase price at settlement, Australian resident vendors of real property with a market value of $2 million or above will need to apply for an ATO clearance certificate and provide this to the purchaser before settlement to ensure no funds are withheld from the sale proceeds.  The ATO clearance certificate confirms that the withholding tax is not to be withheld from the transaction.  Once you provide a clearance certificate to the purchaser they are not obliged to make any further enquiries into your residency status and you are entitled to the full purchase price on settlement.

How do I apply for a clearance certificate?

Applications for a clearance certificate can be made by either the vendor (you), the legal representative (us) or a registered tax agent (your accountant) and can be completed by hand or online via the ATO website.

Once the clearance certificate is issued it will be valid for a period of 12 months and can be used in any sales of property for that particular vendor applicant within that time. The purchaser must receive a copy of the certificate on or prior to settlement and while it is valid, otherwise they will still be required to withhold 10% of the purchase price at settlement.

What happens if I do not get a clearance certificate?

If you do not provide a clearance certificate before settlement, the purchaser is obliged by law to withhold 10% of the purchase price and remit that amount to the ATO.  In that event, you will need to make a claim for a refundable tax credit in that financial year for any amount withheld at settlement.

What if the purchaser fails to withhold?

If the purchaser fails to withhold when they should, a penalty may be imposed by the ATO on the purchaser, equal to the amount that was required to be withheld and paid. General interest charges will also be applied.

If you would like further information, please contact George Wanes.