Capital Gains Withholding Tax

 

This past fortnight at ACOP, we have had a few questions relating to Capital Gains Withholding Tax, which was legislation that was introduced in 2016. So as a reminder, we thought it timely to expand on this again.

In 2016, the Tax and Superannuation Laws Amendment (2015 Measures No. 6) Act 2016 (NO. 10, 2016) – Schedule 2, was introduced, which relates to the legislation where a purchaser has an obligation to withhold Capital Gains Tax on behalf of the vendor.

Under these laws the purchaser is obliged to comply with a foreign resident capital gains withholding payment obligation under either of the two following circumstances:

1. Where the vendor is a foreign resident;

A vendor is treated as a foreign resident if the vendor does not provide the purchaser with either a valid:

• • • clearance certificate by the time of settlement, if they are disposing of an asset that requires a clearance certificate to be provided to avoid the withholding being imposed
    • vendor declaration stating they are an Australian resident, when asked to do so by the purchaser with respect to a transaction involving an asset for which a vendor declaration can be used to avoid the withholding being imposed

and/or

2. Where the market value of the property is $750,000 or more, (even if the vendor is not a foreign resident).

Unless the vendor supplies a clearance certificate from the Australian Taxation Office, the purchaser is required to withhold 12.5% of the sale price (a non-final capital gains tax contribution) at settlement.

The ATO also note that should the 12.5% that is withheld be more than the required Capital gains tax liability; the vendor may be able to claim a discount on their tax return when the capital gains liability is assessed.

The types of taxable Australian property this law applies to include vacant land, buildings, residential and commercial property, leaseholds and strata title schemes.

What this means for agents is that you should be prompting the vendor to discuss this issue with their solicitor when they request for the preparation of a Contract for the Sale and Purchase of Land. Whilst it is not your role as an agent to provide any level of advice around this issue, it is certainly good agency practice to mention to all vendors, whether they are foreign residents or not, so that they can discuss this issue with their solicitor/conveyancer and be prepared for settlement. The clearance certificate does not need to be provided until settlement, however the non-provision of the clearance certificate could definitely delay settlement if the appropriate clearance certificate or vendor declaration is not provide at the time of settlement.

In some cases where a clearance certificate has not been provided, the vendor may wish to postpone settlement, to avoid the purchaser withholding 12.5% of the purchase price and paying it to the Australian Taxation Office. In such scenarios, the terms of the contract will apply as normal for delays at settlement.