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AJML Accountants Update – February 2022

Foreign resident capital gains withholding – part 1

A withholding tax applies to the sale of Australian real estate:

  • Anyone(including companies) who enters into a contract on or after 1 July 2017 to buy Australian real estate for AUD$750,000 or more must keep 12.5% of the purchase price and pay it to the ATO, unless the vendor provides a clearance certificate (which means the withholding tax will not be applied).
  • If the contract was entered into between 1 July 2016 – 30 June 2017, the withholding rate was 10% and was only applied if the real estate was AUD$2 million or more.

If you are a foreign resident selling your property in Australia, you must lodge a tax return at the end of the financial year declaring your Australian assessable income, including any rent from the property and any capital gain from selling the property (including land). All references to property include land.

You can claim a credit for the 12.5% withholding tax that has been paid. You will need a tax file number to lodge your tax return.

What a capital gain is

You make a capital gain on the sale of your property if you sell it for more than what it cost you. This capital gain is included in your assessable income.

To work out what the property cost you, see Cost base.

If you’re an Australian resident for taxation purposes, your assessable income includes capital gains from your assets anywhere in the world.

You can check if you’re a resident for tax purposes using the online tool Are you a resident?.

Foreign residents make a capital gain on the sale of Australian property, which includes a part interest in a property situated in Australia.

Selling a property

Foreign resident vendors

If you are a foreign resident vendor, you can complete a variation application to apply for a reduction in the rate of foreign resident capital gains withholding on the sale of the Australian property. The variation may reduce the withholding rate to nil.

Changes to the law affect foreign residents claiming the CGT main residence exemption from 9 May 2017 as a reason for the variation. You may no longer be able to claim the main residence exemption when you sell property in Australia unless certain circumstances apply.

The variation application form is available at Foreign resident capital gains withholding rate variation application online form and instructions.

Australian resident vendors

If you are an Australian resident vendor selling property, you will need to get a clearance certificate from the ATO before settlement on the property. This will ensure you don’t incur the 12.5% withholding tax.

The clearance certificate application is available online at Capital gains withholding clearance certificate application online form and instructions – for Australian residents.

Note: The clearance certificate will be provided within 14–28 days and is valid for 12 months.