Foreign Resident Capital Gains Tax WithholdingBen Olsen
Foreign Resident Capital Gains Tax Withholding
One of the measures taken by the Australian government in the recent budget to balance the books was to crack down on foreign buyers avoiding capital gains tax (CGT) on the sale of real property. To this end, the foreign resident capital gains tax withholding (FRCGW) scheme has been adjusted in the following key areas:
- The purchase price of real property caught by FRCGW has been reduced to $750,000 from $2 million; and
- The FRCGW tax rate has been increased from 10% to 12.5% of the purchase price.
What is the FRCGW scheme?
FRCGW is designed to ensure foreign residents pay their CGT liability by requiring the buyer in a sale of residential property to pay 12.5% of the purchase price directly to the ATO at settlement unless the seller can provide evidence that they are not a foreign buyer or a lower rate of tax should be withheld.
I am selling residential property – what do I need to do?
If you are not a foreign resident and don’t feel like gifting the ATO with 12.5% of your sale proceeds, then you can apply for a clearance certificate from the ATO. If you are an Australian resident for tax purposes and have completed a tax return in the last two years, Olsen Lawyers can complete and submit the application on your behalf. If this is not the case or your eligibility for a clearance certificate is more complex, we will likely refer you to a qualified taxation specialist for advice.
The ATO expects to issue most clearance certificates within a few days of receiving the application, however, if manual processing of the application is required, it may take between 14-28 days or longer if the seller is considered ‘high risk’.
Applications for a clearance certificate can be made prior to entering into a contract and are valid for 12 months. If you have decided to sell your property, we suggest applying for the clearance straight away to ensure all of your ducks are in a row. Please contact Olsen Lawyers for assistance.
I am buying residential property – what are my obligations?
Under the FRCGW scheme, the buyer is responsible for ensuring the FRCGW is paid to the ATO. The penalty for failing to make the withholding is that the buyer becomes liable to the ATO for the entire amount that should have been withheld.
The advantage of using Olsen Lawyers is that we will ensure the contract entitles you to make the FRCGW withholding, that any clearance certificate provided by the seller is valid and, if necessary, that any payment to the ATO is for the correct amount and paid on time.
Does the FRCGW scheme only apply to residential land?
No, the FRCGW scheme applies to a wide range of Australian property interests including commercial or agricultural real estate, leases of land and options to purchase real property. If you are buying or selling commercial land or business, please contact Olsen Lawyers to ensure your rights are protected.