Foreign resident CGT withholding scheme now effective

Accounting firm Forvis Mazars has reminded property buyers and sellers that the expanded foreign resident capital gains tax withholding scheme now applies to all property purchases that involve sellers who are not Australian residents, effective 1 January.

Under affected transactions, property buyers are required to withhold 15 per cent of the purchase price from the seller and pay that amount to the ATO.

The money withheld is used as a refundable tax credit for the seller when it lodges its tax return for the year of disposal.

The regime was imposed to address low levels of tax compliance among non-residents and aims to ensure that they pay capital gains tax properly when selling Australian property.

Previously, the scheme only applied to property sales of values above $750,000, and the rate withheld was 12.5 per cent.

Foreign residents may apply for a variation to reduce the 15 per cent rate if they can prove the rate is excessive.

This may include cases where there will be no capital gain for the transaction, the tax payable on the gain will be less than the 15 per cent withholding, or when the net proceeds without the withholding are insufficient to cover mortgage discharge fees.

Australian residents can obtain a clearance certificate from the ATO to confirm their residency status to avoid withholding.

While certificates are free and generally straightforward to obtain, Forvis Mazars noted that issues may arise for residents who have lost their tax file number or for deceased estates.

All listed property owners must obtain a clearance certificate to be exempt from the withholding scheme. Certificates are valid for 12 months from their date of issue and can take up to 28 days to process.