Residency for tax purpose – Part 3
Foreign resident capital gains withholding payments
New rules for foreign resident capital gains withholding (FRCGW) apply to vendors disposing of certain taxable property under contracts entered into from 1 July 2017. The changes will apply to real property disposals where the contract price is $750,000 and above (previously $2 million) and the FRCGW withholding tax rate will be 12.5% (previously 10%). The existing threshold and rate will apply for any 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.
Where the seller of these Australian assets is deemed a foreign resident, the buyer must pay 10% or 12.5% of the purchase price (depending on the date of the contract) to the ATO as a foreign resident capital gains withholding payment.
The foreign resident seller can claim a credit for the foreign
resident capital gains withholding payment by lodging a tax return for the relevant year.
Foreign residents and main residence exemption
In the 2017-18 Budget, the government announced that foreign residents will no longer be entitled to claim the main residence exemption when they sell property in Australia.
If you are a foreign resident when a CGT event happens to your residential property in Australia, you may no longer be entitled to claim the main residence exemption. This will apply to you:
- when you use the exemption as a reason for a variation to your foreign resident capital gains withholding rate
- when you lodge your income tax return. You must declare any net capital gain in your income and you can claim a credit for the foreign resident withholding tax paid
The change will apply to foreign residents as follows:
- for property held prior to 7:30pm (AEST) on 9 May 2017, the exemption will only be able to be claimed for disposals that happen up until 30 June 2019 and only if they meet the requirements for the exemption. For disposals that happen from 1 July 2019 they will no longer be entitled to the exemption
- for property acquired at or after 7:30pm (AEST) 9 May 2017, the exemption will no longer apply to disposals from that date.
This change will only apply if you are not an Australian resident at the time of the disposal (contract date).
If you weren’t an Australian resident for tax purposes while living in your property, you are unlikely to satisfy the current requirements for the main residence exemption.
If you are a foreign resident when you die, the changes will also apply to:
- legal personal representatives, trustees and beneficiaries of deceased estates
- surviving joint tenants