As of 1 July 2017, the sale of any real estate over the value of $750,000 will be subject to withholding tax of 12.5%, withheld from the seller by the purchaser.

Foreign Resident Capital Gains Withholding (FRCGW) was originally introduced in 2016. At that time, it was only applicable on property transactions over the value of $2m, and imposed at a rate of 10%. With the increase in foreign property investors and rising unpaid or unreported Capital Gains Tax liabilities by foreign resident sellers, the government has moved to legislate a reduced value threshold and an increased withholding rate to ensure tax is collected on the real property transaction.

How does it work?

Upon settlement of a sale of real estate where the sale price is over $750,000, the purchaser is required to withhold and remit 12.5% of the purchase price to the ATO, by lodging an online Purchaser Payment Notification.

If the seller is an Australian Tax Resident:

• The seller can avoid the withholding tax by providing to the purchaser a Clearance Certificate obtained from the ATO prior to settlement.
• If this certificate is not provided to the purchaser, the purchaser of the property will withhold tax which reduces the net cash paid to the seller.

If the seller is a foreign tax resident:

• The seller cannot be exempted from the purchaser withholding tax,
• However, the seller may apply for a variation of the withholding rate prior to settlement under certain circumstances.

For further information, please contact your Altitude Adviser.