CGT Withholding: Tips for Buyers

If you are buying a property worth $750,000 or more, you may be required to pay 12.5% (or a lesser amount) of the purchase price to ATO unless the Seller complies with new laws. Failure to do so can have serious consequences.​

The Australian Government introduced new laws targeted at preventing foreign residents from selling land in Australian and avoiding paying capital gains tax (CGT). The laws apply to contracts entered into on or after 1 July 2017 where the property sold has a market value of $750,000 or more. Click here for a brief summary of the laws and how they impact you.

Paying the 12.5% (or lesser amount), called the CGT Withholding Amount, is your responsibility. If you fail to pay the CGT Withholding Amount, you may incur penalties in addition to paying the CGT Withholding Amount. Here are some tips to avoid the pitfalls of these new laws:

1. If personal property is included in the purchase price, the property itself may be worth less than $750,000 and the new laws may not apply. This is to avoid the situation of complying with the new laws when they actually don't apply.
2. The laws refer to a "market value" of $750,000 or more, not a "purchase price" of $750,000 or more. So, if you are buying the property from a "related party" for less than $750,000 you may need to obtain a valuation to make sure the purchase price represents market value. This is to avoid a situation where the market value is more than $750,000 and you have to pay the CGT Withholding Amount anyway.  
3. Ask the real estate agent if the Sellers have a Clearance Certificate or Variation Notice. If they do, request copies to be sent to you and your lawyer. If they do not, confirm whether they will be provided and, if so, when the real estate agent expects them to be provided. Notify us if the Seller does not yet have them. 
4. If Clearance Certificate or Variation Notice has not been provided by the Seller, you will need to lodge a Foreign Resident Capital Gains Withholding Purchase Notification Form to the ATO prior to settlement (we can help you with this). You should also request that a cheque be drawn in favour of the ATO for the CGT Withholding Amount at settlement. 
5. If a Clearance Certificate or Variation Notice has been provided by the Seller, check:
   1. that one has been provided for each Seller and that the details match the Seller(s) details;
   2. that the certificate(s) or notice(s) are current when provided;
   3. (if applicable) that the Variation Notice(s) will remain current until after settlement; and
   4. keep copies with other important material.