Recent changes to the CGT withholding regime

What is the CGT withholding regime?

The CGT (capital gains tax) withholding regime was introduced in 2016 to ensure better compliance by foreign residents in respect of their Australian CGT obligations. Although foreign residents are subject to Australian CGT on disposals of taxable Australian property under Division 855 of the Income Tax Assessment Act 1997 there was a low level of compliance by foreign residents.

Until recently, the CGT withholding regime imposed an obligation on a purchaser who acquired Australian property from a foreign resident with a value of $750,000 or more to withhold 12.5% of the proceeds at settlement. This amount is not the final tax but it ensured that a base amount of CGT had been paid with the foreign resident required to lodge an income tax return to determine the final liability.

In the event the foreign resident would not be subject to tax, for example, because of carried forward capital losses, it was possible to have the amount of the withholding obligation varied.

Further, where Australian residents were selling a property with a value of $750,000 or more, they were required to obtain a clearance certificate from the ATO stating that they are an Australian resident and provide this certificate to the purchaser in order to ensure that there was no withholding at settlement.

What is the effect of the changes?

• Recently enacted changes applying with effect from 1 January 2025 have removed the $750,000 threshold meaning all Australian resident sellers of property must now obtain a clearance certificate from the ATO regardless of the value of the property.
• In addition, where withholding is required, the withholding rate has now increased to 15%.

Please contact your MGI DC advisor if you need additional information regarding these changes.