Foreign resident capital gains withholding (FRCGW) applies to vendors disposing of certain taxable property under contracts entered into from 1 July 2016. The FRCGW tax rate is 12.5% which applies to real property disposals where the contract price is $750,000 or more. While the objective of the rules is to assist in the collection of foreign residents' CGT liabilities, the withholding tax will apply regardless of whether the vendor's gain on the sale of the asset is subject to tax under the CGT regime or as ordinary income. However, the withholding obligation applies to both Australian resident and foreign resident purchasers.
Australian resident vendors can avoid the requirement of the purchaser to withhold the 12.5% by providing one of the following to the purchaser prior to settlement:
• for Australian real property, a clearance certificate obtained from us
o Australian resident vendors selling real property will need to obtain a clearance certificate from us prior to settlement, to ensure they don't incur the 12.5% non-final withholding
• for other asset types, a vendor declaration
o the vendor may provide the purchaser with a vendor’s declaration to specify withholding isn't required on the acquisition of the asset.
Foreign resident vendors may apply for a variation of the withholding rate or make a declaration that a membership interest is not an indirect Australian real property interest and therefore not subject to withholding.
Purchasers must pay the amount withheld at settlement to the Commissioner of Taxation.
Claire Chang