New ATO rules regarding Foreign Resident Capital Gains Withholding (FRCGW) Tax will apply to all properties with a price tag of $750,000 or more…
What is the Tax?
The Foreign Resident Capital Gains Withholding Tax (“the withholding tax”) was introduced in February 2016 and imposed a position obligation on purchasers of certain Australian assets to withhold 10% of the first element cost base of the asset (usually the purchase price) when acquired from a “foreign resident” vendor, and pay it directly to the Australian Taxation Office (ATO) prior to or upon settlement.
Which assets and transactions does the new regime apply to?
The new regime applies to transactions for the acquisition of certain Australian assets, with a market value of or over $2 million, including:
- Taxable Australian Real Property (TARP) – land, buildings, residential and commercial property;
- Lease premiums paid for the grant of a lease over real property in Australia;
- Mining, quarrying or prospective rights;
- Indirect Australian real property interests (interests in Australian entities whose majority assets consist of the above such property interests); and
- Options or rights to acquire property.
What are the recent changes and how does this affect property buyers in Queensland?
- Previously the withholding tax applied only to property transactions over $2 million it now applies to all properties with a price tag of $750,000 or more
- These rules are aimed at foreign investors however it affects ALL Australians selling property for $750,000 or more
- These rules apply to ALL property transactions including vacant land, residential property, commercial property, strata title and community title schemes
- Buyers of properties over the threshold are required to withhold 12.5% of the purchase price at settlement, which they then have to pay to the ATO
How to avoid paying the Withholding Tax?
- Following settlement you can apply for a tax credit for the amount that has been withheld by the ATO for the capital gains liability arising from the sale
- To avoid having the 12.5% withheld you can apply for a clearance certificate from the ATO which can then be provided to the Buyer on or prior to settlement
- If you are automatically assessed as an Australian Resident, a clearance certificate will be issued within a few days. This process can take longer for more complex applications
If you are a Foreign Resident/Investor?
The Buyer will withhold 12.5% of the purchase price if you are not an Australian Resident or Citizen. This amount will then be paid to the ATO. If a Seller receives a Variation Notice the buyer will retain the amount stated in the notice.
If you are are concerned as to the implications of FRCGW Tax on the sale or purchase of property in Queensland, do not hesitate to contact our Wilston office. If you, or someone else you know, needs help with this process, why not fill out an enquiry form, we would be happy to assist and advise over your rights and obligations with respect to your property and this tax.
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