ATO cautions tax agents on common CGT errors

The ATO is cautioning tax agents about some of the common mistakes when reporting the sale of their clients’ capital gains tax (CGT) assets, such as property.

Two of the main areas where mistakes were often identified by the Tax Office included foreign resident capital gains withholding and main residence exemption and rollovers.

Agents were advised to let their clients know that having a foreign resident capital gains withholding clearance certificate didn’t mean they had further CGT obligations.

The ATO said if an agent’s client had sold property, the agent would need to ensure the client included capital gains, losses or an exemption or rollover code in their tax return.

"If an amount of FRCGW was withheld from the property sale, your clients need to advise you and provide the FRCGW payment confirmation from the purchaser," the ATO said.

In order for the withheld amount to be credited in their return, the ATO said the tax agent should include it in the CGT section at 'Foreign resident capital gains withholding' (Label 18 X).

"Don't report the Foreign income tax offset (FITO) at the FRCGW question. Report it at Foreign source income (Label 20 O)," the ATO said.

The second error commonly seen by the ATO is with main residence exemption and rollovers.

“For property sales resulting in a CGT obligation, as well as including any capital gain or loss, remember to report the main residence exemption if your clients are eligible,” the Tax Office said.

It added that if an agent’s client was eligible for a main residence exemption due to the six-year rule and was electing to use it for a full or partial exemption, the main residence exemption code should be selected at the exemption and rollovers question in the CGT section.

In the exemptions and rollover question the main residence exemption code should also be selected if a client was eligible for a partial exemption if their home was on more than two hectares of land, the ATO said.

Additionally, the Tax Office said it was crucial to highlight that if a client was a foreign resident and did not meet the life events test for the main residence exemption, they were not eligible.

“Check the pre-fill information available in online services for agents (OSFA) reports for disposals of capital gains assets, including property, shares and crypto.”

“Have a conversation with your clients; even if there’s no pre-fill information, ask if they have disposed of any CGT assets, in particular investment properties.”