On 9 May 2017, as part of the 2017/18 Federal Budget, the Government announced changes to the foreign resident capital gains withholding regime which apply to vendors selling real property, shares in non-listed property rich companies and units in unlisted property trusts from 1 July 2017.
The amendments are designed to capture a significant number of disposals, improve tax compliance for foreign residents and provide the ATO with more information on Australian property disposals.
The recent changes
The following changes, which apply to contracts entered into from 1 July 2017, include the following:
- reduction in contract price to $750,000 (down from $2,000,000); and
- increase in withholding rate to 12.5% (up from 10%).
What you need to remember
If you’re a purchaser of property for more than $750,000 then you must withhold 12.5% of the purchase price at settlement unless the vendor provides you with a clearance certificate or a variation certificate.
If you’re an Australian vendor of property and a relevant sale of $750,000 or more is contemplated, you should apply online to the ATO to obtain a clearance certificate as soon as possible. The clearance certificate is not limited to one property and is valid for 12 months.
If you’re a foreign resident vendor you may apply for a variation certificate of the withholding rate or make a declaration that a membership interest is not an indirect Australian real property interest and therefore not subject to withholding.
If you would like more detail about the new changes to the withholding regime or have any questions, please contact Candice Richards or Daniel Romano of our office on 6212 3777.