What is Capital Gains Tax (CGT)?
Capital Gains Tax is a type of tax you pay on profits from disposing of assets including investments, which includes property and for the purpose of this blog, we will focus solely on CGT payable on property in Queensland.
What is the current requirement?
As of 2016, it is a requirement in contracts that sellers who are selling or transferring a property apply for and obtain an ATO Clearance Certificate to provide to provide to buyers before the settlement date, in order to assist with the collection of foreign resident’s tax liabilities. These ATO Clearance Certificates are valid for up to 12 months from the date of issue, so the same one can be used for the same seller entity over a range of contracts.
Previously, sellers were only required to obtain an ATO Clearance Certificate if the property was being sold for $2,000,000 or more when this requirement came out in 2016, but then the threshold reduced to $750,000.00 for contracts dated on or after 1 July 2017.
What if I currently cannot get an ATO Clearance Certificate?
If you sell your property for $750,000 or more, and you don’t provide the buyer with an ATO Clearance Certificate prior to settlement, then the buyer is required by law to deduct 12.5% from the purchase price and pay it to the ATO at settlement. This will mean significant delays in receiving the full sale proceeds for the property, if you are entitled to those funds.
It is important for buyers also to ensure you have a solicitor to check that the correct entity has been provided with the ATO Clearance Certificate or that the correct forms are lodged to pay the Seller’s CGT at settlement. A failure to pay the CGT withholding amount to the ATO may have serious consequences as in addition to liability for the CGT withholding amount, a penalty (equal to the amount required to be withheld) may apply where a Buyer fails to comply with the CGT withholding laws.
What are the proposed changes?
The draft legislation was released on 23 July 2024 advising two major changes which will be made:
- the current withholding rate on the foreign residential capital gains will increase from 12.5% to 15%; and
- the threshold will be reduced from $750,000.00 to $0.
When will these changes apply?
The Treasury has announced that these changes will apply to acquisitions of relevant CGT assets made on or after the later of 1 January 2025, therefore foreign buyers have time to prepare for the payment of Capital Gains Tax for their future transactions.
What if I am a foreign resident?
If you are a selling your property for $750,000 and more and you are a foreign resident, the buyer will be required to pay 12.5% of the purchase price to the ATO to be offset against your future CGT liabilities. This should be discussed further with your accountant.
If you have any questions about ATO Clearance Certificates, please contact our property team to discuss. Alternatively, you can access additional information from the ATO website by clicking here.
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