Foreign Resident Capital Gains Withholding

Foreign Resident Capital Gains Withholding

If you are selling your property valued at more than $750k AUD and/or are a foreign resident for tax purposes – it’s essential to prepare a clearance certificate under the foreign resident capital gains withholding rules.

Although these rules were brought in to focus on foreign tax resident vendors (person selling) they now affect all property sales over $750,000 (previously $2m).

To learn more about clearance certificates and how to apply for clearance certificates please see this article from the ATO.

The asset types that it applies to are:

• Taxable Australian Property – with a market value of $750,000 or more. This includes vacant land, buildings, residential and commercial property.
• Indirect Australian real property interests in Australian entities. Learn more.
• Options or rights to acquire any of the above asset types

Obtaining a clearance certificate

This will likely be done by your conveyancer, you can also apply to the ATO directly. This can take up to several weeks and may delay settlement, so ensure you take care of this.

What happens if I don’t prepare a clearance certificate?

The purchaser must remit 12.5% of the sale price at settlement directly to the Australian Tax Office. This 12.5% is the foreign resident capital gains withholding. The ATO will continue to hold this until the vendor completes their taxes. They will also use it as a credit to offset any tax that may be payable.

This means that if you sell a house valued at $1m and no clearance certificate has been prepared, the purchaser’s conveyance is obligated to withhold $125,000 to the ATO – severely affecting cash flow. 

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We must reiterate – that even though the rules are called the foreign resident capital gains withholding rules – you must prepare a clearance certificate if:

You are a foreign resident for tax purposes

And/or

Australian tax resident selling a property with a market value of $750,000

Please contact us or book an appointment to chat further on this.