Buyers of Taxable Australian Property

A withholding regime has been introduced intended to ensure that capital gains of foreign residents do not escape tax in Australia by imposing a new obligation on the purchaser (whether they are an Australian resident or not) in relation to a relevant transaction.

The withholding regime was initially introduced on all real property purchases from the 1st July 2016 for any transactions over $2 million. The withholding tax rate for these transactions was 10%.

This regime has now been amended from the 1st July 2017 to now cover all real property transactions of $750K or more, which a new withholding rate of 12.5%.

The withholding rules that apply are determined by the date that the contract is signed, not the settlement date.

Please note the withholding is only on the actual money given for the property and doesn’t apply to any of the associated costs (i.e. stamp duty, legal fees, etc.).

To avoid the withholding regime, a clearance certificate must be obtained by the vendor. This certificate states that they are an Australian resident. This can be obtained from the tax office and is valid for 12 months from the date of issue. For those purchasing a property $750K or more, please ensure a Clearance Certificate is obtained prior to signing any contract.

There are also other exclusions that can apply to avoid this regime.

For further information please contact your RCB Advisors team member.

Sources:

Australian Taxation Office (https://www.ato.gov.au/General/New-legislation/In-detail/Direct-taxes/Income-tax-for-businesses/Foreign-resident-capital-gains-withholding-payments/)