Foreign Resident Capital Gains Withholding Tax
Luciana Ignatiadis, Principal, Network Lawyers
30 August 2017
One of life’s certainties has entrenched itself in the conveyancing world.
We are talking taxes … not the other one.
Up until now, many of us have had limited experience with the Foreign Resident Capital Gains Withholding Tax as it has only applied to the sale of properties valued over $2 million.
However, as of 1st July 2017, vendors selling properties valued at just $750K or more are required to provide the purchaser with an ATO Clearance Certificate prior to settlement.
The clearance certificate notifies the purchaser that the vendor is indeed an Australian resident, meaning the purchaser is not then required to withhold foreign resident capital gains tax.
Failure to provide this certificate obligates the purchaser to withhold 12.5% of the contract price (or value of the property) and to forward these funds to the Australian Tax Office.
This recent amendment to the legislation has caused quite a stir in the conveyancing community as we are now required to spend time sourcing clearance certificates when we could be using this time more productively.
Questions have certainly been raised. Why are we are carrying out additional work for no financial benefit? Why should we serve as unpaid tax collectors?
At any rate, legislative changes will not always suit everybody – perhaps this could be life’s third certainty. At least for the moment, with the rules as they are, we may just have to grin and bear it.
Foreign Resident Capital Gains Withholding Tax applies to the sale of land, lease of land (if a premium has been paid for grant of the lease) as well as shares in a company that owns 10% of land or more. Interestingly, it also applies to mining, quarrying and prospecting rights, even though these are not real property.