ALERT: New Laws with Big Consequences!

If you are selling a property worth $750,000 or more the Buyer may be required to pay 12.5% of the purchase price to the ATO unless Sellers comply with new obligations under new laws and the Standard Contract.

The Australian Government introduced new laws targeted at preventing foreign residents from selling land in Australia 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. 

In short, the Buyer must pay 12.5% of the purchase price to the ATO (called the CGT Withholding Amount) unless the Seller obtains from the ATO either a Clearance Certificate (which confirms the Buyer does not have to pay any part of the purchase price to the ATO) or a Variation Notice (which reduced the amount of the purchase price that the Buyer has to pay to the ATO). 

Not complying with this law has some serious consequences for both sides:

1. Paying the 12.5% (or less) of the purchase price is the Buyer's responsibility. If the Buyer does not pay the amount, in addition to the liability for the amount, the Buyer may be charged penalties until payment is made. This could mean the Buyer pays the full amount of the purchase price plus 12.5% extra for the CGT Withholding Amount. 
2. If the Seller does not produce the Clearance Certificate or Variation Notice and the Buyer pays 12.5% (or less) of the purchase price to the ATO the Seller may not be able to discharge the mortgage or complete settlement and may be liable to be sued by the Buyer, among other consequences.

For more information and tips on how to avoid the pitfalls of these new laws, click here for Buyers and click here for Sellers.