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CGT Withholding Tax on Properties over $2M from 1 July 2016

From 1 July 2016 Contracts for the sale and purchase of properties (residential and commercial) in both Qld and NSW have been amended to incorporate provisions for withholding of 10% of the purchase price on settlement by the buyer. This amount is referred to as the “CGT Withholding Amount”.

It is now an obligation on the buyer of “any interest in Australian land” where the purchase price is more than $2 million to withhold 10% of the market value on settlement. Where a purchase price has been negotiated between the parties on an arm’s length basis, the purchase price will be taken to be the market value.

This obligation also extends to the following:

  1. A mining quarrying or prospecting right in relation to resources situated in Australia
  2. A 10% or more interest in an Australian entity that predominantly holds any of the above assets
  3. An option to acquire any of the above

The buyer must complete an online Foreign Resident Capital Gains Withholding Purchaser Payment Notification form before the day of settlement. The buyer will then receive a payment reference number (PRN) with a payment slip and barcode. This must be used to pay the CGT Withholding Amount to the ATO.  The ATO has indicated this amount must be paid on the day of settlement, however did allow for a short grace period without stating what this period will be.  The new Contracts allow for 2 business days from the date of settlement. However it must be noted that if the buyer does not pay the CGT Withholding Amount within the 2 business days, general interest charges will accrue from the date of settlement.

To avoid this obligation the seller must give to the buyer an ATO Clearance Certificate on or before the settlement date to confirm the CGT Withholding Amount is not to be withheld on settlement.  This Clearance Certificate will be valid for 12 months and the seller can apply for the Certificate at any time.  The ATO has implemented an automated process which the seller can use to complete an application form for the Clearance Certificate online.

If a seller is not entitled to a Clearance Certificate but believes the withholding of 10% is inappropriate, the seller can apply for a Variation from the ATO.  It appears the ATO can take up to 28 days to issue the Variation Notice and this timeframe should be taken into consideration when a settlement date is agreed upon between the parties.

As mentioned, the buyer is liable to withhold the amount and to pay it to the ATO.  If the buyer does not comply with this obligation he will be guilty of an offence and if convicted, may be ordered to pay to the ATO the amount that was supposed to be withheld on settlement.  In addition, the Court may also impose 10 penalty units on the convicted buyer.

It is therefore important that buyers comply with these obligations preferably on or before settlement.

The Property and Commercial Department of Attwood Marshall is available to assist buyers and sellers with these matters. Should you require any further information, please do not hesitate to contact our Property and Commercial Department Manager Holly Gilholme on 07 5506 8202.

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Barry van Heerden

Barry van Heerden

  • Partner
  • Property and Commercial
  • Direct line: (07) 5506 8248
  • Mobile: 0403 452 455