Leigh Mansell, director of SMSF technical and education services for Heffron, said in a recent update that although the concept of foreign resident CGT withholding has been around since 2016, a recent change to the threshold amount should be noted.
“The change is essentially that we used to have a $750,000 threshold, and a seller wasn’t required to get a clearance certificate from the ATO if the sale price for a taxable Australian property asset was less than that amount,” she said.
“Now, for any contract on or after 1 January 2025, you need to make sure that the seller, if the fund is a seller, goes through the motions of getting a clearing certificate from the ATO. This requires an application made to the ATO that needs to be given to the buyer by settlement day.”
Mansell said that although she is confident most legal professionals will be aware of the change, any advisers dealing with clients who may be in this situation need to ensure they follow the new requirements.
“The hiccup could be if, for example, a fund is selling something, the buyer would be obliged to withhold tax, and the rate has increased from 12.5 per cent to 15 per cent. That means if the fund sells a property for $1 million and the trustee is expecting to get $1 million, that won’t happen,” she said.
“What will happen will be the buyer will withhold $150,000 that will go to the ATO. The fund will get $850,000 and will be able to get the $150,000 back after it has lodged its annual return for the year of sale.”
However, Mansell warned there would be a time delay in the process.
“So if you’re banking on making sure you’ve got that $1 million worth of proceeds, just be careful with this.”
“It is worth double-checking all the procedures to ensure you do it right.”
There is another change to the rules if a fund is dealing with off-market transfers of property, which could be a lump sum benefit payment in the form of a transfer of a property or the contribution of property.
“You need to make sure that you have got those clearance certificates in place. This is where I think the threshold dropping off might be a little bit problematic, and people might not realise that [the new regulation] also applies to them,” Mansell said.
“They may believe that because they’re doing an in-specie transfer, they don’t need to get that certificate, but they do.”
A timely reminder, thanks. Have one of those in train now. Certainly had not “thought” of that in our initial discussions. Even though I have assisted with around 4 Certificates already this year. The ATO are will have more potential revenue, definitely more future CGT, and clearer knowledge of who is dealing in property now for principal residence exemptions going forward.