Foreign resident capital gains withholding payments
The Federal Parliament recently passed changes to the existing Foreign Resident Capital Gains Tax withholding scheme to capture a much larger segment of the Australian property market.
Remind me again what this is all about?
The initial regime was introduced on 1 July 2016 and required buyers of property worth $2 million or more to withhold 10% of the purchase price and pay those funds to the ATO following settlement, unless the seller provides the buyer with a Clearance Certificate. This affects all sellers and not just foreign owners. The Clearance Certificate is issued by the ATO and confirms that the seller is an Australian resident and that the buyer is not required to withhold the payment.
What changes are being made?
The threshold of $2 million is being reduced to $750,000 and the withholding tax is being increased to 12.5% of the purchase price. This means that buyers of property worth $750,000 or more are required to withhold 12.5% of the purchase price and pay those funds to the ATO following settlement, unless the seller provides the buyer with a Clearance Certificate.
The changes are due to apply to all relevant contracts entered into from 1 July 2017.
What happens if a buyer fails to comply?
If a buyer does not receive a Clearance Certificate from the seller and fails to pay 12.5% of the purchase price to the ATO, they will become personally liable to pay this amount as a penalty.
What should we be doing as Agents?
If you are listing a property which is likely to sell for around $750,000 or more, where possible, you should have any sellers who are Australian residents make an application for their Clearance Certificate prior to the property actually being sold. This will ensure settlement is not delayed due to this process. Application forms can be downloaded directly from the ATO here.
If KRG is acting on behalf of the seller, we will ensure that all contracts over $750,000 are identified and that the requirements are discussed with the seller. We will even make the application for the Clearance Certificate on the seller’s behalf.