Changes to Threshold and Rate for Foreign Resident Capital Gains Withholding Payments (May 2017)

On 1 July 2016 a system was implemented to assist the Australian Taxation Office with the collection of capital gains tax from foreign residents, as part of the settlement process when selling or buying real property or interests in real property in Australia.

In general terms, the procedure (which applies to both foreign and Australian residents) is that unless one of the exceptions applies, a purchaser is required to withhold an amount (currently 10%) of the purchase price from the seller and pay it to the ATO (withholding payment). As this system is aimed at the collection of capital gains tax from foreign residents, there are exceptions for sellers who are not foreign residents, subject to the parties following the correct process. For example, Australian residents selling property may obtain a clearance certificate from the ATO prior to settlement.

On 9 May 2017 as part of the 2017-2018 Federal Budget, the Government announced two changes to the system – to the threshold and the withholding payment rate. The changes will apply to any contracts of sale entered into on or after 1 July 2017.

The two changes to note are:

  • the threshold is being reduced from $2million to $750,000 – so the regime will now apply to all real property disposals where the market value of the property is $750,000 and above; and
  •  the withholding payment rate will be increased to 12.5% (the current rate is 10%).

The current threshold ($2 million) and withholding payment tax rate (10%) will apply for any contracts which are entered into prior to 1 July 2017, even if they do not settle until after 1 July 2017.

See this link to our previous update issued on 30 August 2016, for further details on the foreign resident capital gains withholding payments system:

ATO and Foreign Resident Capital Gains Withholding Tax – Changes Every Person Needs to Know when Selling or Buying Property in Australia

If you would like more detailed information on the changes and/or the impact they may have on you or a proposed asset sale, please contact partner Emma Leys on 08 9321 3755.

The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.