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Changes to foreign resident capital gains tax withholding regime (FRCGW)

Last year, the government introduced new withholding rules for certain property sales. The purpose of the withholding regime is to assist in the collection of capital gains tax (CGT) liabilities of non-residents when they dispose of Australian assets.

The May 2017 Federal Budget announced changes extending the FRCGW regime, effective 1 July 2017.

The FRCGW withholding rate has increased to 12.5% (previously 10%). The withholding threshold has been reduced from $2 million to $750,000 meaning more sales of real property will be impacted by the legislation. The new rules apply to any real property contract that is entered into on or after 1 July 2017.

How does this affect me?

Note, this legislation potentially affects everyone selling property, both commercial and residential, with a contract price of $750,000 or more, as it automatically assumes all vendors to be non-resident. Australian resident vendors need to obtain a clearance certificate from the ATO and provide it to the purchaser prior to settlement to ensure 12.5% of the sale price is not withheld from the proceeds. Please allow at least 14 to 28 days for the ATO to process a clearance certificate application.

If you are a foreign resident and decide to sell an Australian property, the purchaser is required to withhold and pay 12.5% of the purchase price to the ATO at settlement. Foreign residents may apply to the ATO for a variation to the rate (if appropriate).

If you require assistance in obtaining your clearance certificate or any other property related matter, please contact us on (08) 9301 2200 or enquire here.

written by:

McKinley Plowman