New Foreign Resident CGT Withholding Payment Rules

New Capital Gains Tax withholding rules for foreign residents ato-foreign-resident-cgt-withholding-payment-regime

Details of how it will administer the new foreign resident C.G.T. withholding payment rules have been released by the ATO.

The new withholding rules will apply to contracts entered into on or after 1 July 2016.

Summary of the new CGT withholding rules

When a foreign resident disposes of certain taxable Australian property, the purchaser will be required to withhold 10% of the purchase price and pay that amount to the Australian Taxation Office (ATO).

The same requirement also applies where the disposal of such taxable Australian property by a foreign resident generates gains on revenue account and, as a result, is taxable as ordinary income, rather than as a capital gain.

New, ten percent non-final withholding

The new withholding regime introduces a 10 per cent non-final withholding on payments made to foreign residents under contracts entered into on or after Friday 1 July 2016 to dispose of certain taxable Australian property consisting of:

  • Real property in Australia – land, buildings, residential and commercial property.
  • Lease premiums paid for the grant of a lease over real property in Australia.
  • Mining, quarrying or prospecting rights.
  • Interests in Australian entities whose majority assets consist of the above such property or interests.
  • Options or rights to acquire the above property or interest.

Foreign residents capital gains tax withholding – exclusions

The ATO announced a number of exclusions. If the foreign resident vendor falls within one of these categories then the 10% withholding is not applicable:

  • Real property transactions with a market value under $2 million, ensuring that the vast majority of residential house sales will be unaffected by this measure.
  • Transactions listed on an approved stock exchange.
  • The foreign resident vendor is under external administration or in bankruptcy.

Three online forms will be made available at www.ato.gov.au/FRCGW before 30 June 2016. These are:

  1. Clearance certificate application for Australian residents.
  2. Variation application for foreign residents and other parties.
  3. Purchaser payment notification.

If you have any questions about Capital Gains Tax withholding rules for foreign residents, please contact our consultants at W Wen & CO Chartered Accountants.

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