The ATO has recently announced changes to its Foreign Resident Capital Gains Withholding tax (FRCGW) measure.
From 1 July 2017, all sellers of properties over $750,000, regardless of their nationality, will need to apply to the ATO for a Clearance Certificate.
Failure to provide this will mean that the buyer of the property is required to withhold 12.5% of the sale price and pay it on behalf of the seller to the ATO.
What is a Clearance Certificate?
A Clearance Certificate is issued by the ATO and provides confirmation that the withholding tax is not applicable to the settlement transaction.
How can I get a Clearance Certificate?
For sellers who are classed as ‘Australian Residents for tax purposes’, you can apply for a Clearance Certificate either via your accountant or directly on the ATO website.
Buyers should ensure that a copy of the Clearance Certificate is provided by the seller prior to settlement. If a seller provides the buyer with the Clearance Certificate prior to settlement, no further action is required.
It is important to note that whilst a seller may be an Australian Citizen, they may not be classified by the ATO as an ‘Australian Residents for tax purposes’. In this instance, they may be unable to obtain a Clearance Certificate.
What if I cannot obtain a Clearance Certificate?
If a seller is unable or unwilling to obtain a Clearance Certificate prior to settlement, the buyer must withhold 12.5% of the purchase price and pay it to the ATO on behalf of the seller.
The seller, deemed to be a foreign resident vendor, must lodge a tax return at the end of the financial year, declaring their Australian assessable income, including any capital gain from the disposal of the property. The seller may claim a credit for any withholding amount paid to the ATO as part of the property settlement in their tax return.
Foreign resident vendors may also apply to the ATO either directly, or via their accountant for a Variation to reduce the amount payable to the ATO under the FRCGW measure.
How do I know if I am an ‘Australian Residents for tax purposes’?
Visit the ATO’s website or speak to your accountant prior to selling your property.
What if there is more than one owner/seller?
Where there are multiple sellers, each one should apply for a separate Clearance Certificate in their name only.
When should I apply for my Clearance Certificate?
The Clearance Certificate is valid for 12 months from the date of issue. We recommend applying for the Clearance Certificate around the time you list the property for sale, or otherwise as early on in the process as possible.
The ATO recommends allowing a minimum of 14 – 28 days to receive your Clearance Certificate. However, if you can, we would suggest applying even earlier than this, as in some cases, it may take additional time.
I want more information about the Withholding Tax, who should I speak to?
Remember, Metro Settlements are not Tax Agents, and cannot provide taxation advice.
The above information is provided to you for general purposes only.
We recommend speaking to your accountant or registered tax agent for advice specific to your circumstances. Alternatively, more information can be found on the ATO’s website.