Changes to the Foreign Resident Capital Gains Withholding regime

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.