CGT Withholding: Tips for Sellers

If you are selling a property worth $750,000 or more, the Buyer may be required to pay 12.5% (or a lesser amount) of the purchase price to the ATO unless you comply 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.

If you do not produce a valid Clearance Certificate or Variation Notice from the ATO before settlement, the Buyer is required to pay 12.5% (or a lesser amount) of the purchase price to the ATO, called the CGT Withholding Amount. This can have serious consequences including being sued because you are unable to discharge your mortgage or complete settlement. 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 selling 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 the Buyer is required to pay the CGT Withholding Amount anyway.  
3. A Clearance Certificate or Variation Notice can take up to 28 days so it is critical that you obtain them immediately. They may be valid for up to 12 months so it is a good idea to obtain them as soon as you list your property. We can help obtain them if you wish. 
4. Let us know as soon as possible if you are relying on the full proceeds of sale being available at settlement. If you are, and we are not able to produce Clearance Certificates(s) or Variation Notice(s) by settlement, we may need to request extensions to the settlement date. 
5. If you are a foreign resident you may only be entitled to a Variation Notice. This lowers the CGT Withholding Amount, but does not eliminate it. You should seek advice from a taxation professional about the amount of CGT Withholding that will apply and confirm you are still able to settle. 
6. A Clearance Certificate or Variation Notice must be provided by each Seller. If the certificate of title shows an entity other than a person, the certificate or notice must be issued for that entity.