On 9 May 2017 the Government announced changes to the Foreign Resident Capital Gains Withholding rate and threshold which will apply to Contracts entered into on or after 1 July 2017.
As it currently stands, if a foreign resident sells Australian property over $2m the purchaser is required to withhold 10% of the purchase price (or cost base) and pay that amount to the Australian Taxation Office (ATO) prior to completion of the purchase, unless a clearance certificate has been obtained by the vendor from the ATO.
On 1 June 2017 the Treasury Laws Amendments (Foreign Residents Capital Gains Withholding Payments) Bill 2017 was introduced into Parliament which reduced the threshold and increased the rate of the foreign residents capital gains tax withholding.
The effect of the legislation is that for any contracts entered into after 1 July 2017:
- the threshold to withhold has been reduced from $2m to $750,000.
- The withholding rate has been increased from 10% to 12.5%.
Therefore from 1 July 2017, any property being sold by a vendor above $750,000 will now require the purchasers to withhold 12.5% of the cost base or purchase price and complying with the foreign capital gains withholding tax provisions. The reduced threshold will no doubt significantly increase the number of property transactions that are now captured by the provisions.
As an example, if you were to buy a property from a foreign resident for $800,000, and you are not provided with a clearance certificate from the ATO by the vendor, you will now be required to withhold $96,000 from the purchase and remit that sum to the ATO.