Buyer's Liability for Seller's Capital Gains Tax in Australian

So you as the Buyer do not want to become responsible for the Sellers capital gains tax? Then read on to avoid it…

As of 1 st July 2016, the law in Australia substantially changed. To avoid foreign entities selling their Australian assets and then never paying the capital gains tax associated with the sale, the law has been changed so that the Buyer will become liable to pay that capital gains tax of the Seller in certain transactions unless certain steps are followed.
This law will not only potentially apply to the sale of land but also to the transfer of leases of real property. The trigger point for the legislation to potentially apply is if the market value of the relevant land is $2 million or more. So if the property is worth less than $2 million, then there is no exposure to a Buyer.

If the property is worth $2 million or more, then it is crucial that a Buyer obtain legal advice before signing any contract or option deed. Essentially a Seller needs to give a Buyer a “clearance certificate’ issued by the Australian Tax Office (ATO) for a Buyer to avoid paying any tax. A clearance certificate confirms that the Seller is not a foreign resident. Alternatively, a Seller can give the Buyer a notice of variation issued by the ATO, that may result in a set amount of the sale proceeds having to be paid to the ATO after settlement.

If the Buyer does not receive a clearance certificate or notice of variation from the Seller, the Buyer must pay the ATO ten percent (10%) of the sale price after settlement of the contract. If the Buyer fails to do so, then they are liable for the capital gains tax of the Seller on the sale.
It is crucial that any contract signed deals with the above issues. Please do not hesitate to contact Parker Law QLD for assistance or advice.