ATO CGT Withholding – Does it apply to family law property settlements?
Yes, parties to family law matters are also subject to the ATO’s new withholding scheme aimed at ensuring foreign residents meet their obligation to pay capital gains tax on the sale or disposal of property settlements.
The scheme was introduced pursuant to the Tax and Superannuation Laws Amendment (2015 Measures No. 6) Act. In a nutshell, family law clients will be deemed foreign until they obtain a clearance certificate from the ATO.
The ATO CGT withholding provisions apply as at 1 July 2016. Family lawyers must consider these provisions as they apply to all transfers of real property, not just sale transactions.
Any event that is an ‘acquisition’ under Division 109 of the 1997 Tax Act may trigger the provisions.
As with any seller of real property, a party to a family law matter will need to obtain a valid clearance certificate from the ATO.
The new provisions apply to family lawyers, succession lawyers and conveyancing lawyers.
The issue will arise in a family law property settlement where:
- One of the parties is a foreign resident; or
- There is a transfer of an interest in real property and the value of the entire property is $2 million or more.
Parties to a family law matter will need to obtain a clearance certificate in respect to the transfer of that property. Failing this, 10% of the value of the property will be sought by the ATO.
How to comply and not be left out of pocket in your property settlement?
The form entitled ‘Foreign resident capital gains withholding clearance certificate application’ must be completed and lodged with the ATO. Family lawyers will need to ensure that the transferor (the outgoing owner) provides to the transferee (the incoming owner) a clearance certificate issued by the ATO to ensure that there has been compliance.
Evans & Company Family Lawyers are experienced in all areas of family law. From 1 July 2016 we include provision for compliance with the ATO requirements in Court Orders and Binding Financial Agreements.
The ATO’s new withholding scheme applies to parties attempting to reach an agreement as to property settlement whether through mediation or litigation in the Family Court of Australia or the Federal Circuit Court of Australia.
As a family law property settlement is between related parties, there is also the issue of who establishes the value of the real property to ascertain whether the ATO’s new scheme applies. The ATO will require independent evidence as to value.
Will it be the obligation of the family lawyer to obtain a valuation from a registered valuer in every matter?
It is our view that an experienced family lawyer should take a cautious approach.
Family lawyers are not experts in valuing property. An appraisal should be sought in all family law property settlements. If the value is given at $1 million or more, then it would be prudent to obtain a valuation.
As we are conscious of costs, value may be agreed by a more cost effective method of obtaining appraisals from local real estate agents. Such an approach may not satisfy the ATO’s requirements.
The ATO website refers to the need for parties to obtain ‘separate expert evaluation’.
The ATO will need to be provided with evidence of any investigations as to value at the time the clearance certificate is sought. It would be unfortunate if the ATO required a valuation from a registered valuer in every case as this cost would need to be borne by the parties. This is an issue that will no doubt be clarified over time by the ATO.
Some helpful links to relevant pages on the ATO website are set out below.
https://www.ato.gov.au/Media-