SMSF Property Withholding Tax Not Limited to Cash Transactions

8 Feb 2022

Written by

David Busoli, Principal

Even though the 12.5% CGT withholding regime was introduced to catch foreign transactions it requires the satisfaction of procedural obligations to exclude its application to any sale or acquisition of real property (vacant land, buildings, residential and commercial property) with a market value of at least $750,000. It may also include transfers of share or units in property rich “private” companies and unit trusts.

Failure of the vendor to deliver a clearance certificate or vendor declaration to the purchaser, unless another exception is satisfied, requires the purchaser to withhold 12.5% for payment to the ATO on or before settlement. If no, or reduced, tax is ultimately payable, the residual will be refunded to the vendor once their tax return is lodged but it is clearly preferable if it was not deducted in the first instance.

A clearance certificate is generally not required for transfers involving a deceased estate or family law.

SMSF transactions are included and are not limited to a cash purchase. They include in-specie transactions – though an in-specie contribution by a member to their SMSF is unlikely to trigger the provision due to cap limitations. In-specie withdrawals are more likely to be included as the market value trigger rests with the SMSF “vendor”.

The provision also includes a transfer of title involving SMSF trustee changes so presents another arguement in favour of corporate trustees.

The $750,000 threshold applies to the market value of the asset. This will usually be the purchase price but non-arm’s length transactions that do not reflect market value can be adjusted by the ATO and also invoke NALI considerations.

If the clearance certificate or vendor declaration is fraudulent the vendor can be prosecuted. The purchaser, relying on the vendor statements in good faith, is not liable.

Vendor penalties ($222 per unit) include:

  • 120 penalty units ($26,640) for deliberate falsity
  • 80 penalty units ($17,760) for reckless falsity
  • 40 penalty units ($8,880) where falsity is for failing to take reasonable care.

The ATO provides extensive CGT withholding information on their website. It’s worth checking to be sure.

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