Further amendments to foreign resident capital gains tax

As part of the 2017-2018 Federal Budget delivered in May, the Federal Government announced further changes to the recently introduced system of collecting capital gains tax from foreign residents, making the legislation applicable to many more property transactions.

What system?

The system (introduced last year) aimed to address the low tax compliance of foreign residents who disposed of real property. It did this by placing an obligation upon a purchaser to withhold 10% of sale proceeds from an applicable transaction and pay that to the Commissioner for Taxation. Importantly, there was an exception that provided that a purchaser was not required to withhold any funds if the transaction was for the acquisition of an asset valued at $2 million or less.

An article published in Page Seager’s May 2016 e-newsletter (available here) outlined the introduction of this system from 1 July 2016.

What has changed?

Under the new legislative changes, which took effect on 1 July 2017:

  • the exemption threshold described above has been reduced from $2 million to $750,000; and
  • the withholding payment rate has been increased to 12.5%.

How do the new changes apply?

The changes apply to any contracts entered into after 1 July 2017 as well as any entered into prior to then, provided they do not settle until after 1 July 2017.

What does the change mean?

The effect of these changes is that the system will now apply to many more property transactions, and vendors (or their legal representative) will need to obtain an ATO Clearance Certificate to avoid the requirement of the purchaser to withhold funds at settlement.

If you wish to know more about this regime, or if you require assistance in complying with it as part of a property transaction, please contact either:

David Shelley
Partner
M: 0427 183 217
E: dshelley@pageseager.com.au

Brett Garth
Associate
M: 0407 535 218
E: bgarth@pageseager.com.au

Published: 19 July 2017

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