Update on CGT and sale of property
Article date: 31st March 2021
For those of you who have major capital property assets, there are rules that you may need to be aware of when it comes time to sell. These rules apply to a variety of assets which I will list out shortly, and any sale or transfer of these types of property can be subject to withholding tax at the rate of 12.5%. This means that you will not receive the full value of the sale because the purchaser will need to withhold 12.5% under the new rules and send that to the ATO to cover any potential CGT payable on that sale!
But YOU can avoid this withholding tax by a simple and straightforward method that requires application for a “Land Clearance Certificate” from the ATO. If you need help with this, please contact us so that we can help you apply for the Clearance Certificate. The link to take you to that form on the ATO website is: https://www.ato.gov.au/FRWT_Certificate.aspx
The clearance certificate must be sought at least 28 days before the expected sale of the property.
Let’s backtrack and discuss this situation a little more. It has been around a while, but if you are not in the habit of buying and selling assets that relate to this ruling, then you may need to be more aware of your obligations as a seller, and as a purchaser.
On 1st July 2016, Sales of certain property became subject to withholding tax of 10% which applied if you are a foreign resident selling property over the value of $2 Million market value. The withholding amount must be paid by the purchaser to the ATO within 28 days after settlement, so property contracts with extended settlement dates beyond 2016 may still apply this rate and payment.
From 1st July 2017, however, the threshold of value dropped to $750,000 and the withholding tax increased to 12.5%. The withholding amount will generally be based on the purchase price and sent by the purchaser to the ATO. If the transaction is a related party transaction, market value may need to be ascertained via an independent valuation.
The CGT withholding must be made and paid by every purchaser whether an Australia resident, or non-Australian resident.
Assets to which these rules apply are:
· Taxable Australian real property,
· An interest in Australian real property- even if indirect through a variety of structures
· An option or right to acquire such property or interest.
You may ask does your situation fit these criteria?
It may well affect you, if your property is “real” property, situated in Australia (included a lease of Australian land),or if it is a right to mine, quarry or prospect Australian minerals, petroleum or materials. It can include vacant land, property interests that may have related or created a company title interest.
If you are at all unsure about whether this affects you, please call us for a confidential discussion on 0402911992.
Source: ATO website, last date viewed 02-11-2021
March 2021