Foreign Resident Capital Gains Withholding Tax

Withholding tax

From 1 July 2016 new rules came in regarding the disposal of property assets by foreign investors.

Foreign Investors disposing of Australian property valued at $2 million or more, now incur a 10% non-final withholding payment at settlement, which must be paid to the ATO. Australian citizens need to apply for a clearance certificate.

Australian resident vendors selling real property can obtain a clearance certificate from the ATO prior to settlement, to ensure they don't incur the 10% non-final withholding.

The foreign resident vendor must lodge a tax return at the end of the financial year, declaring their Australian assessable income, including any capital gain from the disposal of the asset. A tax file number (TFN) is required to lodge a tax return; they will need to apply for a TFN if they don't have one. The vendor may claim a credit for any withholding amount paid to us in their tax return.

  • Australian resident vendors can avoid the 10% withholding by providing one of the following to the purchaser prior to settlement.
    • A clearance certificate for Australian real property obtained from the ATO
    • For other asset types, a vendor declaration they are not a foreign resident.
  • Foreign resident vendors may apply for a variation of the withholding rate or make a declaration that a membership interest is not an indirect Australian real property interest and therefore not subject to withholding.
  • Purchasers must pay the amount withheld at settlement to the Commissioner of Taxation.

The legislation applies to the following asset types:

  • Real Property
    • Taxable Australian real property with a market value of $2 million or more
      • vacant land, buildings, residential and commercial property
      • mining, quarrying or prospecting rights where the material is situated in Australia
      • a lease over real property in Australia.
  • Other assets
    • Indirect Australian real property interests in Australian entities, whose majority of assets consist of the above asset types
    • Options or rights to acquire any of the above asset types.

If you require assistance in the disposal of your assets, please contact your trusted advisor at PJT.

Protect Your Assets

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About the author

Jodie is the Managing Director of PJT. She leads the team in making sure we are providing you with exceptional service and are always staying one step ahead. She now puts her experience in growing businesses into PJT.