Foreign Resident Capital Gains Withholding

The Foreign Resident Capital Gains Withholding Payments provisions of the Taxation Administration Act 1953 came into force on 1 July 2016. When a property with a market value of $750,000 or more is sold, the Purchaser is required to withhold 12.5% of the purchase price.

Australian resident Vendors selling real property will need to obtain a Clearance Certificate from the Australian Taxation Office prior to settlement, to ensure they don't incur the 12.5% withholding tax.

The withholding sum is remitted to the Australian Taxation Office unless the Vendor provides a Clearance Certificate. This certificate is valid for 12 months and must be provided to the Purchaser on or before settlement and the 12 months must span the settlement date.

This means all Vendors, resident or foreign, of real property with a market value of $750,000 or above will need to apply for a Clearance Certificate from the Australian Taxation Office and provide this to the Purchaser before settlement to ensure no funds are withheld from the sale proceeds.

A foreign resident is someone who is either:

1. A foreign natural person who is not an Australian citizen, not a New Zealand citizen with a special category visa subclass 444 or

does not hold an Australian permanent residence visa;

2. A foreign corporation including corporations incorporated outside of Australia; or

3. A foreign trust.

A foreign resident Vendor may seek to have the 12.5% withholding amount varied in which case the Purchaser is only required to pay the amount stipulated in the notice of variation. This notice must be provided by the Vendor to the Purchaser before settlement to ensure the reduced withholding rate applies.

Where a withholding obligation exists, the Purchaser must withhold the relevant amount at settlement and pay it to the Australian Taxation Office without delay as a general interest charge may apply to late payments. The Purchaser is required to complete an online Purchaser Payment Notification form at which time the Purchaser will receive a payment reference number and a payment slip allowing payment to be made.

The penalty for failing to withhold is equal to the amount that was required to be withheld. An administrative penalty may also be imposed.

Please let us know if you think this will apply to your sale.

We will then work with you so that you can comply with the requirements.