Changes to the Foreign Residents Capital Gains Withholding Tax (FRCGWT)

FRCGWT landing page - June 2017

As part of the 2017 federal government budget changes it was announced that there would be amendments to the current requirements of the FRCGWT. The market value threshold would decrease and withholding rate would be increased. The requirements will now be as follows;

  • Withholding will now apply to Australian taxable property with a market value of $750,000 or more
  • The rate of withholding will now be 12.5% 

These changes come into effect for contracts entered into on or after 1 July 2017 and despite the name of the bill, the withholding also applies to Australian residents, who will need a clearance certificate issued from the Australian Taxation office to prove they are not a foreign resident. 

WHAT IS THE FOREIGN RESIDENTS CAPITAL GAINS WITHHOLDING TAX?
In 2016 the Federal Government introduced a bill where if a foreign resident disposes of certain taxable Australian property, the purchaser is required to withhold an amount from the purchase price and pay that amount to the Australian Taxation Office (ATO). The obligation is on the purchaser/s and/ or their representative to withhold a 10% non-final withholding on the purchase price of taxable Australian property that had a market value of $2 million or more, unless the vendor produces a clearance certificate (Clearance certificates are only available to Australian residents).  

WHAT DOES THIS MEAN FOR YOU?
If you are acting on behalf of a purchaser and the market value (contract price) is $750,000 or more, you will be required to hold 12.5% of the deposit monies and pay it to the ATO, unless the vendor produces a clearance certificate before or at settlement.

If you are acting on behalf of a vendor and the market value (contract price) is $750,000 or more, you will need to ensure they have applied for a clearance certificate through the ATO and it is provided to the purchaser or their representative before or at settlement.

HOW DO I PAY THE WITHHOLDING?
If you have withheld part of the deposit monies, you will need to create a 'purchaser payment notification' before or on the day of settlement. This can be done online at www.ato.gov.au/frcgw_payment_notification.aspx. Once you have completed the details you will be able to print off a payment slip that contains payment reference number. 

You can pay for the withholding by the following methods;

  • EFT details provided on the payment slip;
  • Mail a cheque and the payment slip to the ATO, address details will be provided on the payment slip;
  • Attend an Australian Post outlet with the payment slip and provide a cheque for payment. 

HOW DO I APPLY FOR A CLEARANCE CERTIFICATE?
If you are required to produce a clearance certificate you can download and complete a form or apply online at www.ato.gov.au/FRWT_Certificate.aspx. If you provide an email address as part of the online application the certificate will be issued within a few days. The certificate is valid for 12 months and will need to be valid at the time of settlement.

IMPORTANT THINGS TO NOTE: 

  • In certain circumstances it may be appropriate to apply for a variation on the amount to be withheld. For more information on this see ATO website
  • A clearance certificate is required for each Vendor and must issue in the name on the certificate of title. 

WEBINAR
The ATO is offering a free webinars to cover the changes announced in the Budget for Foreign resident capital gains withholding. The webinar will be held on Monday, 19th June from 1:00 - 2:00pm, to register visit https://attendee.gotowebinar.com/register/3770072922575898625

FOR MORE INFORMATION
To view Frequently Asked Questions on FRCGWT visit the ATO common questions page

To view impacts on foreign and Australian residents visit the ATO capital gains tax in detail page