Foreign resident capital gains withholding payments – impacts on foreign and Australian residents
Following on from our previous article regarding foreign residents acquiring taxable Australian property, the 2017 Federal Budget has announced further changes to the Foreign Resident Capital Gains Withholding (FRCGW) regime. These changes mainly include:
- an increase of the withholding amount from 10% to 12.5% and
- a reduction of the application threshold from $2m to $750,000.
This is very important for those with the following:
- Taxable Australian Real Estate (TARP), including interests held in Australian real property (mining rights, leasehold etc.) – that may have a total market value of $750,000 or more;
- Interest in an entities where the majority of the assets of the entity are TARP or interests in TARP – irrespective of value; or
- An option or right to acquire (1) or (2) – irrespective of value
This regime change will apply for agreements, deeds, contracts, share issues and other acquisitions that are dated on or after 1st July 2017. This means that acquires who sign after 1st July 2017 will have to pay the ATO 12.5% of the market value rather than the usual 10%.
How do you avoid this extra fee? For direct TARP transfers, provide a valid ATO clearance certificate on or before the completion of the transaction. For indirect TARP transfers (e.g. shares, unit, etc.), obtain a residency declaration from the disposer.
The provision of a clearance certificate is how the ATO confirms that withholding tax is not required for a particular transaction. Therefore, it is vital for everyone acquiring property over $750,000 to obtain this clearance BEFORE the completion of the transaction, otherwise the ATO will assume that the purchaser is a foreign resident and charge the 12.5% withholding fee.
If you require any further information regarding this new change, feel free to contact our firm at email@example.com or call 1300 HATZIS (1300 428 947)