If you’re selling your house for over $750,000 you are deemed a foreign resident - unless you prove otherwise
Changes in the foreign resident capital gains (‘FRCGT’) withholding regime apply to all vendors disposing of certain taxable property under contracts entered into from 1 July 2017.
A vendor is treated as a foreign resident in relation to the transfer of property valued at $750,000 or more, unless each vendor who disposes of:
1. real property provides the purchaser with a valid clearance certificate by settlement; or
2. certain indirect Australian real property interests or options to acquire real property interests provides the purchaser with a valid vendor declaration stating they are an Australian resident when asked to do so by the purchaser.
Otherwise, when purchasing from anyone who is deemed a foreign resident for tax purposes, a purchaser must withhold 12.5% of the purchase price from the vendor and remit it to the Australian Tax Office (ATO) at settlement. Such moneys will be credited to the foreign resident’s tax assessment (if they lodge a return).
For real property that is subject to the withholding regime the vendor must provide a clearance certificate confirming the withholding tax is not applicable to the transaction. Individuals or companies may apply online to the ATO for a clearance certificate which may take up to 28 days to issue – but is usually issued promptly (we suggest attending to this on or before signing a contract).
Such certificate is valid for 12 months. Where there are multiple Australian resident vendors disposing of the asset, each vendor must to apply for a separate clearance certificate in their name only.
Other property subject to withholding
For all other asset types subject to FRCGT, the vendor may provide the purchaser with a vendor’s declaration warranting withholding isn’t required on the acquisition of the asset. A vendor’s declaration is valid for 6 months. ‘Residency Declarations’ and ‘not an indirect Australian real property interest declarations’ may be made by vendors.
Foreign resident vendors may apply to the ATO for a variation for various reasons (e.g. proceeds at settlement will be insufficient to cover a mortgage).
The FRCGT regime now applies to a significant proportion of real property sales in Australia. The purchaser bears the risk and must pay the withholding amount to the ATO at settlement if the vendor cannot produce the documents stipulated above.
Vendors should ensure they consider the implications of the legislation well before settlement, to allow time to obtain documents from the ATO, if necessary.
If you require any assistance or would like to find out more about FRCGT withholding, please do not hesitate to contact our office.
Alternatively, you can obtain further information from the ATO website at www.ATO.gov.au/FRCGW.
(07) 5443 4866