Are You Selling Australian Property?
Don’t be fooled into thinking that ‘Foreign Residents Capital Gains Withholding’ (FRCGW) does not apply to Australian residents. In fact it absolutely does! This not only affects Australian resident property owners it also requires them to comply with legal obligations and can impose heavy penalties for non-compliance.
Vendors/sellers of Australian property valued over $750,000 will be required to prove they are not a foreign resident through the Australian Taxation Office (ATO) by applying for a clearance certificate. The clearance certificate notifies the purchaser not to withhold foreign resident capital gains from the sale of taxable Australian real property (the asset).
Vendors will need to ensure they apply for a clearance certificate well in advance of the settlement date under the contract. Applications may take up to 14 days or in some instances 28 days depending on review by the ATO and this should prompt vendors to apply for their clearance certificate as early as prior to listing the property for sale.
The details appearing on the certificate must comply with strict criteria to ensure that it is valid. A solicitor and tax agent should therefore be consulted prior to applying for the certificate.
For those who purchase real property with a market value of $750,000 or more (GST inclusive) from a foreign resident, or from someone who has not provided a clearance certificate in time, they will be required to withhold 12.5% of the purchase price for payment to the ATO rather than the vendor. For the vendor, the amount withheld may then be claimed back with lodgement of their tax return which includes the sale of the Australian property.