23 June 2017

Impact on property sales of $750,000 or more

On 1 July 2017, the proposed changes to the Foreign Resident Capital Gains Withholding (FRCGW) rate and threshold will take effect.

These changes will apply to contracts entered into on, or after 1 July 2017 for real property disposals where the contract price is $750,000 and above.  The FRCGW tax rate will also change from the existing rate of 10% to 12.5%. 

The existing $2 million threshold and 10% rate will still apply for any contracts entered into before 1 July 2017 even if they are not due to settle until after 1 July 2017.

The change to the threshold from $2 million to $750,000 will result in many more properties requiring a clearance certificate for exemption of the withholding.  The Australian Taxation Office (ATO) can only grant clearance certificates to a seller who is an Australian resident.  

Australian resident sellers of real property with a market value of $750,000 or above must apply for a clearance certificate to ensure no funds are withheld from their sale proceeds.

Important: If the seller does not provide the clearance certificate before the settlement of the transaction the purchaser will be required to withhold 12.5% of the purchase price and pay this to the ATO. 

Further information and the Foreign resident capital gains clearance withholding certificate application form can be obtained by visiting the ATO website.