In the 2017 Budget announcement the Government advised of changes to the Foreign Resident Capital Gains Withholding (FRCGW) rate and threshold which will impact property disposals from 1 July 2017.
In short, any Contract for Sale entered into post 1 July will be affected by the regime if the contract price is $750,000 and above. This represents a significant decrease in the threshold which was initially set at property sales for $2 million and above.
From 1 July, the FRCGW rate will be increased from a 10% withholding to a 12.5% withholding.
What does this mean for the property industry? A vast majority of properties sold will now be caught in this regime.
Eligible Vendors (i.e. vendors of properties with a value of $750K or more) will therefore be required to obtain either a Clearance Certificate or a Variation Notice and serve it on a Purchaser not less than 7 days before Completion. Each and every Vendor is required to obtain a Certificate (or Notice) and serve on the Purchaser(s). If a Vendor is unable to obtain either of these certificates or fails to do so within the time prescribed under the Contract, then the Purchaser must comply with his/her obligations under the Contract and withhold the ‘remittance amount’ from the purchase price. Note that a Vendor cannot simply delay settlement because he/she has omitted to obtain a Clearance Certificate (or Variation Notice).
The key obligations of a Purchaser under the Contract are:
- provide evidence of registration with the ATO at least 5 days before Completion;
- produce settlement cheque for remittance amount at settlement (sighting only);
- forward the cheque immediately after Completion to the ATO;
- serve evidence that the payment has been received by the ATO.
Want to know more? Here is a link to the ATO’s website on this new and important development. Or give us a call or send us an email.