Foreign resident capital gains withholding 2017

The Australian Government made changes on 9 May 2017 to the withholding rate and threshold for the foreign resident capital gains withholding (FRCGW). The changes came into effect for all contracts entered into on or after 1 July 2017.

What is the foreign resident capital gains withholding?

The initial FRCGW scheme was introduced on 1 July 2016. It applied when sellers are foreign residents, and required buyers of property worth $2 million or more to withhold 10% of the purchase price, paying that sum to the ATO after settlement.

An exception to the withholding tax is when the seller provides the buyer with a Clearance Certificate. This is issued by the ATO and confirms that the seller is an Australian resident and that the buyer is therefore not required to withhold the payment.

What are the new capital gains tax rate and threshold?

The new changes will capture a much larger portion of the Australian property market.

The threshold of $2 million has been lowered to $750,000 and the rate of withholding tax has been increased to 12.5% of the purchase price.

The same exception applies when an Australian seller gives the buyer a Clearance Certificate.

Capital gains withholding: the consequences of non-compliance

If you are the buyer and you do not receive a Clearance Certificate from a foreign seller and fail to pay 12.5% of the purchase price to the ATO, you will become personally liable for that amount as a penalty.

What Spot On can do for you

When Spot On Conveyancing is acting on behalf of the seller, we will ensure that we identify all contracts over $750,000 and that sellers meet all requirements. We will make the application for the Clearance Certificate on behalf of Australian sellers. (Application forms are available on the ATO website.)

When we are acting on behalf of the buyer, we will ensure that the buyer obtains a Clearance Certificate before settlement on the property, wherever a Clearance Certificate is applicable.