The Treasury Laws Amendment (Foreign Resident Capital Gains Withholding Payments) Act 2017, assists with the collection of foreign residents’ Australian tax obligations. The way it works is to place the onus to collect the tax on purchasers of land at settlement of the contract of sale. This requires the purchaser of a property to withhold 12.5% of the purchase price and pay it to the Australian Taxation Office at settlement. There are mechanisms for vendor to avoid having 12.5% of the price being withheld.
Australian who sell their property for $750,000.00 or over, are required to obtain a Clearance Certificate from the Australian Taxation Office prior to settlement and provide it to the purchaser to ensure that they do not incur the 12.5% withholding. The Certificate is valid for 12 months from the date of issue and only for the listed Vendor. The Tax File Number of the Vendor will be required to receive the Clearance Certificate.
The withholding obligation applies to both Australian resident and foreign resident purchasers. The foreign resident vendor 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.
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