27 June 2017

Conveyancing Update: Changes to CGT Withholding Regime

Last year, with effect from 1 July 2016, the foreign resident capital gain withholding tax came into effect following amendments to the law regarding Capital Gains Tax (“CGT”).  The changes to the CGT laws required that sellers of land in Australia (or mining, quarrying or prospecting rights) withhold 10% of the purchase price in contracts worth over $2 million and remit that amount to the ATO.

The introduction of this regime was designed to assist with collection of CGT from foreign residents but in practice affected all contracts over the threshold amount.

Last month, the government announced further changes to this regime:

  • increasing the withholding rate from 10% to 12%; and
  • decreasing the withholding threshold from $2 million to $750,000.00.

These changes come into effect from 1 July 2017 and will affect contracts entered into on or after this date.

While the withholding requirements apply to foreign residents, sellers of all property over $750,000.00 will now be affected by the withholding requirements.

For sellers that are not foreign residents, in transactions of over $750,000.00, prior to settlement you will need to obtain a clearance certificate from the ATO.  If one is not provided, the purchaser will be required to retain 12% of the purchase price and remit this amount to the ATO.  The significantly lower threshold will also mean that many residential property sales will now be affected.

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