The Treasury Laws Amendment (Foreign Capital Gains Withholding Payments) Bill 2017 was passed in Parliament on June 15 2017. The Bill has amended Schedule 1 to the Taxation Administration Act 1953 (TAA) to modify the foreign resident capital gains withholding payments regime (FRCGW). The amendments seek to:
- Increase the withholding rate to 12.5% from 10% of the price; and
- Reduce the withholding threshold to property with a market value of $750,000 from $2,000,000 or more.
Such changes only apply to contracts entered into on or after 1 July 2017. They will substantially increase the number of transactions to which the withholding measure applies, especially in Sydney, whereby a significant portion of houses and apartments will now be within the ambit of the measure
Australian citizens may be foreign residents
Accordingly, practitioners must be aware that the FRCGW measure also applies to Australian citizens who are not Australian tax residents. This means that Australian residents who reside overseas and are not Australian tax residents cannot obtain a clearance certificate under s 14-220 of Schedule 1 of the TAA but may be able to obtain a variation under s 14-235 of Schedule 1 of the TAA. The nature of such variations, including amounts payable and other issues, are ultimately dependent upon the Australian Taxation Office’s assessment of the Capital Gains Tax payable by the vendor.
If no clearance certificate is attached to the contract or served by the vendor on the purchaser, the purchaser must submit a purchaser payment notification to the Australian Taxation Office (ATO) five days before the date of completion. Furthermore, if no clearance certificate is attached to the contract served by the vendor on the purchaser, or a variation issues specifying an amount to be paid other than zero, the purchaser must draw a ‘settlement cheque’ for the ‘remittance amount’ and forward it to the ATO immediately after completion.
The sheer volume of extra transactions means a significant proliferation in ‘red tape’ for practitioners. If the sale price is $750,000 or above, and if the contract was entered from July 1 2017, vendors must apply for a clearance certificate from the ATO, otherwise the withholding (subject to a variation) will apply.
Practitioners acting for purchasers will also need to be alert to the fact that in many more transactions, they may need to submit a purchaser notification to the ATO prior to settlement. This will notify the ATO that they will be remitting an amount immediately after completion.