Capital Gains Tax

Main legislation

Income Tax Assessment Act 1997 (Cth)

The gain is added to income and paid as part of the income tax system. There are many exemptions including pre-CGT assets, personal use assets (your principal residence) and roll-overs, but such exemptions are based on complex criteria. CGT commenced on 20 September 1985.

CGT claims LPLC sees typically arise when a client believes that it was their lawyers’ role to both raise and explain the possible CGT consequences of a transaction, allowing the client to take these tax consequences into account before making their decision to act. Most claims involve the transfer of land, especially where the practitioner is not focused on the commercial nature of the transaction. This includes scenarios such as an inter-family transfer of land that can trigger a CGT event or transfers from a deceased estate where roll over relief for CGT does not apply.

Capital Gains Tax | Australian Tax Office (ATO)

Beware of tax issues when advising your client | LPLC article

To support the timely collection of CGT, the Federal Government introduced obligations on purchasers of real estate to withhold and pay part of the purchase price of the real estate transaction to the ATO, to be applied to the vendors potential CGT obligations.

Withholding originally commenced in 2016 at an acquisition price of $2M or more, but then reduced to an acquisition price of $750,000 or more from 1 July 2017. Further changes from 1 January 2025 have removed any threshold acquisition price and increased the rate to 15%. It is anticipated these changes will apply to contracts for the disposal of real property entered from 1 January 2025. Details are in the Treasury Laws Amendment (Tax and other Measures No. 1) Act 2024 which amends schedule 1 of the Taxation Administration Act 1953 (Cth).

From 1 January 2025 withholding will apply to all Australian real property transactions regardless of value. It will require the purchaser to withhold and pay 15% of the acquisition price to the ATO, unless the vendor provides a valid clearance certificate or a withholding variation at or before settlement.

The legislation also applies to some indirect interests in Australian property including leases, mining and quarrying rights, and options to acquire interests in such property. Note that it is currently being considered whether the rules will extend to other types of similar assets. Withholding can apply to property transactions in conveyancing, family law, deceased estates and commercial transactions.

Foreign resident capital gains withholding overview | Australian Tax Office

• Look for the tax and duty implications associated with the transfer of real property and associated transactions (like share transfers) to alert clients and, if appropriate and required, provide advice or direct the client to seek expert advice.
• Read the guidance and the information provided to improve your understanding and awareness.
• Identify complexities beyond your expertise and refer clients for expert advice.
• Use a checklist or prompt at the start of a matter to identify tax and duty issues.
• Always check the details in the legislation and SRO guidelines before advising clients and keep records to confirm any advice given.
• Establish, update and maintain comprehensive advice letters and resources that you can adapt for each specific client matter to ensure relevant advice is given to clients and confirmed in writing.
• Maintain a focus on tax and duty in all property and property conveyancing matters.