Just 12 months after its introduction, the Foreign Resident CGT Withholding Tax Regime (FRWT Regime) was amended and from 1 July 2017 any property transaction with a sale value of $750,000 or more is affected; additionally, the withholding rate was increased from 10% to 12.5%.
The FRWT Regime requires that 12.5% of the purchase price is withheld by the purchaser at settlement and the withholding amount is paid by the purchaser directly to the ATO. The vendor will claim a credit in their tax return for any withholding amount paid on their behalf.
This applies to all property sales unless one of the following exemptions applies:
The sale value is less than $750,000
A clearance certificate (available online from the ATO & valid for 12 months) is provided by the vendor before settlement.
The Commissioner authorises a variation of the withholding amount. This is likely where the vendor can show there will be no capital gain on the sale or will not have a tax liability for that income year. This could also apply where there are multiple vendors and not all are foreign residents.
The value of my transaction is over $750,000 – what do I need to do?
Selling a property? Australian residents should apply to the ATO for a clearance certificate & provide this to the purchaser before settlement. Non-residents may be able to apply for a variation of the withholding rate.
Buying a property? Ensure you obtain a clearance certificate, a withholding rate variation as issued by the ATO or a vendor declaration* before settlement. A penalty equal to the withholding amount can be imposed on purchasers who fail to comply with the withholding requirements.
As soon as you list for sale or sign a purchase contract you should seek professional advice to ensure these new rules don’t end up an ATO nightmare.