CAPITAL GAINS WITHHOLDING TAX: IMPACTS ON FOREIGN AND AUSTRALIAN RESIDENTS

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New rules for Foreign Resident Capital Gains Withholding (FRCGW) apply to all sellers disposing of certain taxable property under contracts entered into from 1 July 2017. The changes will apply to real property disposals where the contract price is $750,000 and above (previously $2 million) and the FRCGW withholding tax rate will be 12.5% (previously 10%).

 

All Australian resident vendors selling real property will need to obtain a clearance certificate from the Australian Taxation Office (ATO) prior to settlement, to ensure they don't incur the 12.5% non-final withholding tax.

 

This existing withholding legislation assists the collection of foreign residents’ Australian tax liabilities. It imposes an obligation on buyers to withhold 12.5% of the purchase price and pay it to the ATO.

 

The foreign resident seller must lodge a tax return at the end of the financial year, declaring their Australian assessable income, including any capital gain from the disposal of the asset. A tax file number (TFN) is required to lodge a tax return; they will need to apply for a TFN if they don't have one and the seller may claim a credit for any withholding amount paid to the ATO in their tax return.

 

Foreign resident sellers may apply for a variation of the withholding rate or make a declaration that a membership interest is not an indirect Australian real property interest and therefore not subject to withholding.

 

Buyers must pay the amount withheld at settlement to the Commissioner of Taxation.

 

The legislation applies to the following asset types:

  • real property: -                
    • taxable Australian real property with a market value* of $750,000 or more: -
      • vacant land, buildings, residential and commercial property
      • mining, quarrying or prospecting rights where the material is situated in Australia
      • a lease over real property in Australia.
  • other assets: -             
    • indirect Australian real property interests in Australian entities, whose majority of assets consist of the above asset types
    • options or rights to acquire any of the above asset types.

 

* In many cases, the market value of a property will be the purchase price. Where the purchase price has been negotiated between the seller and the buyer, acting at arm’s length, the ATO will accept the purchase price as a proxy for market value.


Some assets are not subject to the withholding including:

  • taxable Australian real property with a market value of less than $750,000.
  • securities lending arrangements

 

Sellers can make application for a clearance certificate via the ATO’s website at https://www.ato.gov.au/FRWT_Certificate.aspx - Clearance Certificates have a life span of 12 months.

Source: Australian Taxation Office


For more information, contact the team at Stellar Conveyancing

Tel 1300 51 61 71

Email [email protected]

Web www.stellarconveyancing.com.au

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