Foreign resident capital gains withholding – part 4
Foreign resident capital gains withholding (FRCGW) applies to vendors disposing of certain taxable property under contracts entered into from 1 July 2016.
The FRCGW tax rate is 12.5%.
It also now applies to real property disposals where the contract price is $750,000 or more.
For contracts that are entered into from 1 July 2016 and before 1 July 2017, even if they are not due to settle until after 1 July 2017, the FRCGW withholding tax rate is 10% and applies to real property disposals where the contract price is $2 million and above.
This existing withholding legislation assists the collection of foreign residents’ Australian tax liabilities.
It imposes an obligation on purchasers to withhold 12.5% of the purchase price and pay it to us, where a vendor enters into a contract on or after 1 July 2017 and disposes of certain asset types (or receives a lease premium for
the grant of a lease over Australian real property).
The foreign resident vendor must lodge a tax return at the end of the financial year, declaring their Australian assessable income, including any capital gain (profit) from the disposal of the asset.
A tax file number (TFN) is required to lodge a tax return; they will need to apply for a TFN if they don’t have one. The vendor may claim a credit for any withholding amount paid to us in their tax return.
Australian resident vendors can avoid the requirement of the purchaser to withhold the 12.5% by providing one of the following to the purchaser prior to settlement:
- for Australian real property, a clearance certificate obtained from us
- Australian resident vendors selling real property will need to obtain a clearance certificate from us prior to settlement, to ensure they don’t incur the 12.5% non-final withholding
- for other asset types, a vendor declaration
- the vendor may provide the purchaser with a vendor’s declaration to specify withholding isn’t required on the acquisition of the asset.
Foreign resident vendors may apply for a variation of the withholding rate or make a declaration that a membership interest is not an indirect Australian real property interest and therefore not subject to withholding.
Purchasers must pay the amount withheld at settlement to the Commissioner of Taxation.