Capital gains withholding: Impacts for foreign
and Australian residents
On 9 May 2017 the Federal Government announced proposed changes to the foreign resident capital gains withholding rate and threshold. The changes will apply to contracts entered into on or after 1 July 2017.
- for real property disposals where the contract price is $750,000 and above (currently $2 million)
- the Foreign Resident Capital Gains Withholding rate will be 12.5% (currently 10%)
- Australian resident vendors selling real property will need to obtain a clearance certificate from ATO prior to settlement, to ensure they don’t incur the 10% non-final withholding.
- A clearance certificate provides certainty to purchasers regarding their withholding obligations. It confirms the withholding tax is not applicable to the transaction.
- The purchaser must withhold 10% of the purchase price with a market value of $750,000 or more, unless a vendor shows the purchaser a clearance certificate from the ATO.
- How long does it take to obtain a clearance certificate?
- The ATO automatically process around half of all applications, which means they can issue a clearance certificate within days of receiving the application. However, the ATO have to manually process the remaining half, which means they can issue a clearance certificate in 14 to 28 days of receiving these applications.If you lodge your application within days of the settlement date and it requires manual processing, the ATO cannot guarantee it is processed by the settlement date as the ATO will not disadvantage those other applicants who applied earlier by delaying their application to process yours.
- Higher risk and unusual cases may also require greater manual intervention, which could take longer.
- A clearance certificate is valid for 12 months from the date of issue. A vendor can obtain the clearance certificate prior to the sale of their house.
At Conveyancing Matters we ensure that all our client’s’ transactions are carried out in accordance with the changes being introduced in the 2017 / 2018 Federal Budget. All the members of our professional conveyancing team are briefed on the issues and ramifications arising from them so they can assist you should these changes have an impact on your property transactions.