Capital Gains Tax (CGT) Withholding

The Commonwealth government has introduced a new CGT (Capital Gains Tax) withholding regime targeted at ensuring foreign residents comply with their CGT obligations when they dispose of real property in Australia. However, in effect all vendors and purchasers of property in Australia (not just foreign residents) are affected by the new regime and must comply with the requirements of Australia Tax Office (ATO).

The Regime

The withholding regime applies to any contract for real property in Australia (worth at least $2million) and requires the purchaser to withhold 10% of the purchase price from the vendor at settlement. The type of property affected by the regime extends beyond just land and buildings and may affect contracts for mining rights, leases of real property, interests in Australian companies that hold land and options to acquire land or an interest in land.

The only way to avoid a withholding is for the vendor to obtain a clearance certificate from the ATO which must then be provided to the purchaser before settlement. It is also possible for the vendor to obtain a variation from the ATO if they believe a withholding of the full 10% is inappropriate.

If a clearance certificate is not provided, the purchaser must formally notify the ATO of the withholding and pay to them the full amount on or before settlement.

What you must consider

Any contract for property that may be affected by the regime must include a provision which sets out the parties obligations with respect to any CGT withholding. Although standard REIQ contracts have already been amended to deal with the new regime, it is crucial that any non-standard contract or option agreement is correctly drafted to ensure that settlement can be effected without delay and neither party is in breach of Australian taxation law.

How we can help

Olsen Lawyers are experts in the field of property and commercial law and would be pleased to assist you in all aspects of your sale or purchase of property, from determining whether the CGT regime affects the transaction, to drafting the contract or special conditions and liaising with the ATO on your behalf. Contact Olsen Lawyers today on (07) 3846 5288 or email us here.