Capital Gains Withholding Tax
Capital Gains Withholding Tax
In 2017 the Tax Administrations Act 1953 (Cth) was amended to prevent foreign investors from selling property within Australia and moving proceeds offshore without paying Capital Gains Tax.
Foreign Resident Capital Gains Withholding Tax is a tax that is imposed on the sale of certain Australian properties valued at or above $750,000. The tax is applied to the capital gain earned from the sale of the asset, and is collected by the purchaser’s conveyancer or solicitor and paid to the Australian Taxation Office (ATO) at the time of settlement.The tax was introduced in 2016 as part of the Australian government’s measures to crack down on foreign investment in Australian property. The tax was designed to ensure that foreign residents paid their fair share of tax on any capital gains they made from the sale of Australian property. The tax applies to foreign residents who sell certain types of Australian assets, including real estate, shares in Australian companies, and units in Australian unit trusts. The tax is levied at a rate of 12.5% of the purchase price of the asset, or the market value of the asset at the time of sale, whichever is greater.Foreign Resident Capital Gains Withholding Tax is applied at the time of settlement, which means that the tax is withheld by the buyer and remitted to the ATO. The seller is then required to lodge an income tax return at the end of the financial year, and the amount of capital gains withholding tax paid is credited against any income tax liability they may have in Australia.
The new provisions deemed all persons selling property valued at $750,000 or more as foreign residents unless proved otherwise. Accordingly, all vendors who sell property which is valued at $750,000 or more will need to obtain a Foreign Resident Capital Gains Withholding Clearance Certificate as evidence of their Australian tax residency status.
The capital gains withholding tax can be a significant burden for foreign residents who sell Australian assets, as they may be required to pay taxes in their home country as well as in Australia. However, there are a number of exemptions and concessions available that can reduce or eliminate the capital gains withholding liability for certain foreign residents.One of the main exemptions is the principal place of residence exemption. This exemption applies to foreign residents who sell their main residence in Australia. Under this exemption, the capital gains withholding tax is not applied, provided that certain conditions are met. For example, the property must have been the foreign resident’s main residence for at least six months in the 12 months before the sale, and the property must not have been used to earn income during that time.The capital gains withholding tax can also be reduced or eliminated under Australia’s double tax agreements with other countries. Double tax agreements are designed to prevent double taxation of foreign residents who have tax obligations in both Australia and their home country. Under these agreements, the capital gains withholding tax may be reduced to a lower rate, or eliminated altogether, depending on the terms of the agreement.
The online application can be found at this link and includes instructions as to completion: https://www.ato.gov.au/forms/capital-gains-withholding-clearance-certificate-application-online-form-and-instructions—for-australian-residents/
