Buyers and Sellers Beware: New Capital Gains Tax Holding Regime

In summary, amendments made to the Taxation Administration Act 1953 (Cth.) requires all Purchasers of real estate for Contracts worth $2 million or more to withhold 10 per cent of the purchase price. This relates to the sale of any land without exception (i.e. residential, commercial, industrial or vacant land) where the purchase price is $2 million or more.

Whilst the amending legislation is intended to apply to the collection of unpaid tax from foreign residents, the provisions apply to all Vendors unless a Vendor obtains, and provides to their Purchaser a ‘Clearance Certificate’. The Certificate confirms that the CGT does not require collection because the Vendor is a local purchaser.
The intention of the legislation is to ensure that any CGT liability of a foreign resident is collected and remitted at the time that the foreigner sells real estate. It is a non-final withholding and credit may be claimed once the Vendors actual capital gain is assessed.

The justification for the amendment is that historically a foreigner’s CGT has been difficult to recover and collect because in most cases, the proceeds are transferred overseas. Accordingly, the new legislation requires a Purchaser to withhold 10 per cent of the purchase price in the above circumstances and pay the money to the Australian Tax Office (ATO). If the Purchaser fails to do so, they will be subject to penalties and interest.

Combined with additional recent conveyancing reforms including the imposition of a stamp duty surcharge for foreign purchasers and the like, the new legislation presents further complexity to the conveyancing process. It is therefore imperative for both Vendors and Purchasers of property to obtain proper legal advice and engage a legal practitioner to undertake their conveyancing to ensure that they are properly navigated through the myriad of procedures and requirements.

Tisher Liner FC Law can assist both Vendors and Purchasers through the latest requirements.

When acting for Vendors under the new CGT regime, we can:

• Identify whether the property is likely to be sold for $2 million or more;
• Apply, on behalf of the a local Vendor, for a Clearance Certificate, as soon as possible and provide this to the Purchaser or their legal representative so as to ensure that 10 per cent of the price is not withheld for CGT;
• Check and confirm that the Clearance Certificate is in the name of the Vendor and is accurate and correct;
• Where possible, attach the Clearance Certificate to the Contract of Sale and draft any necessary Special Condition; and
• When acting for a foreign Vendor ensure that there are sufficient funds available at settlement having regard to any mortgage or encumbrances which need to be discharged and ensuring that the onus is on the Purchaser to collect and remit the CGT (including obtaining written confirmation from the ATO if/as required);

When acting for Purchasers, we can:

• Identify whether the sale is one to which the new requirements apply;
• Review the Contract to ascertain if it includes the Vendor’s Clearance Certificate;
• Properly check any Clearance Certificate provided to confirm that it is for the correct Vendor;
• If the Vendor has not provided a Clearance Certificate, ensure that the 10% CGT is adjusted, withheld and collected at settlement;
• Ensure that the Vendor’s CGT is remitted to the ATO on behalf of the Purchaser; and
  If appropriate, confirm with the Vendor’s representative that the payment has been made.

Please note that the above is general information only. There are exemptions exclusions and specific requirements so each transaction that needs to be considered on a case-by-case basis, depending upon individual circumstances.

For more information please contact Ron Cohen or a member of our Property Law Team.