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ATO CGT Withholding Changes

Australian resident vendors selling real property will need to obtain a Clearance Certificate from the ATO to ensure they don’t incur a 12.5% withholding tax.

It applies to all vendors in all states and territories, to all property (residential and commercial) and other asset classes to all properties with a contract price of $750,000 or more (the previous applicable value was $2m or more).

If you are an Australian resident for tax purposes (I.e. you pay taxes in Australia, regardless of your nationality) you must apply for an ATO Clearance Certificate that ideally is delivered to the purchaser by the selling agent on the exchange of contracts or at least prior to settlement.

Your Clearance Certificate is valid for 12 months.

If an ATO Clearance Certificate is NOT available at settlement the buyer is obliged to withhold 12.5% of the sale value, for immediate payment to the ATO.

Yes, the buyer becomes the tax collector, and must forward said withholding to ATO within days of settlement.

For sales effected in the 12 months July 1 2016 to June 30 2017 with a contract date prior to June 30th this year, the sale value remains $2m or more and the tax 10% – even if those contracts have not yet settled.  From July 1st 2017, it is a sale value of $750,000 or more and 12.5% withholding.

Australian resident vendors of real property can avoid the 12.5% withholding tax by providing the Clearance Certificate obtained from the ATO.  For the sale of other asset types, a vendor declaration they are not a foreign resident is all that is required.

Foreign resident vendors may apply for a variation of the withholding rate or make a declaration that a membership interest is not an indirect Australian real property interest and therefore not subject to withholding.

Purchasers must pay the amount withheld to the Commissioner of Taxation at settlement. Significant penalties apply for non-compliance and the liability rests with the buyer. 

Please share this with anyone you know selling or thinking of selling.

And if perchance you purchased property for a contract price of $2m or greater in the past 12 months without receiving a Clearance Certificate from the vendor at settlement, you are liable to pay the ATO 10% of the sale price – and if not yet paid – that may be increased with interest and penalties.  Please talk to your tax advisor ASAP.  If in doubt see this: https://www.ato.gov.au/General/Capital-gains-tax/I…

Get your Clearance Certificate here: https://www.ato.gov.au/FRWT_Certificate.aspx