SMSFs warned on critical compliance step with property transfers
With the capital gains tax withholding regime in some instances applying to transfers of property involving super funds and trusts, SMSF clients should ensure they obtain a clearance certificate before settlement, warns an industry law firm.
Back in 2017, the government introduced a Capital Gains Tax withholding regime which requires purchasers who acquire an Australian property from a foreign resident to withhold 12.5 per cent of the purchase price and pay that amount to the ATO.
In an online article, Townsends Business & Corporate Lawyers said that SMSFs that have borrowed under a limited recourse borrowing arrangement, repaid the loan and now want to transfer the property back to their SMSF, may be wondering whether the regime applies to them.
Under the regime, the purchaser must withhold 12.5 per cent of the purchase price for any transactions involving a property that has a market value of $750,000 or more, unless the vendor shows the purchaser a clearance certificate from the ATO, the law firm explained.
It is also important to note that the regime applies to trusts and superannuation funds, it said, despite the fact that winding transactions, where the property is transferred back to the fund trustee from the holding trustee after the repayment of the loan, and transactions that involve changing the legal title of an SMSF assets after a change in trustee, generally involve assets that are transferred with no monetary consideration.
While the purchaser is unlikely to withhold the 12.5 per cent of the purchase price from the vendor in these types of scenarios, the holding trustee should nevertheless provide the fund trustee with a clearance certificate.
“The SMSF trustees in their capacity as the directors of the holding trustee would need to provide the fund trustee with the clearance certificate at or before settlement,” Townsends said.
“An application for the clearance certificate must be made online through the ATO’s website and should be made by [the SMSF trustees] at least 28 days before settlement in order to avoid delays.”
Townsends explained that where the regime is applicable, but no clearance certificate is provided to the holding trustee, the fund could be required to remit 12.5 per cent of the purchase price to the ATO.
“Where a valid clearance certificate is provided, the purchaser would not be required to withhold an amount from the purchase price for the vendor listed in the clearance certificate,” it said.