Buying or Selling Property? Beware of the Capital Gains Tax Withholding Rules
If you are buying or selling real estate situated in Australia for $750,000 or more, it is important to be aware of the Capital Gains Tax Withholding rules.
With effect from 1 July 2017, for any real estate transactions of $750,000 or above, the seller must provide to the purchaser, prior to settlement, a “clearance certificate” obtained from the ATO.
Without this, the purchaser is required to withhold 12.5% of the price and pass this on to the ATO.
The seller would then need to wait until lodgement of their income tax return before they could recover the withheld amount.
The laws were introduced to tackle the problem of foreign residents selling real estate and avoiding their capital gains tax liabilities.
In practice, however, it means that the vast majority of real estate transactions not involving foreign residents are also impacted.
The ATO recommend applying for a clearance certificate at least 14 days before you require it.
If you are purchasing real estate at $750,000 or above, and the seller is unable or unwilling to provide you with a clearance certificate, then you are required to withhold 12.5%.