GM Tax

Foreign resident capital gains withholding & Clearance Certificates

What is foreign resident capital gains withholding?

Foreign resident capital gains withholding (FRCGW) applies to real property disposals where the contract price is $750,000 or more.

The FRCGW tax rate is 12.5%.

What is a foreign resident capital gains withholding clearance certificate?

The purchaser must withhold 12.5% of the purchase price in transactions involving taxable Australian real property with a market value of $750,000 or more, unless the vendor shows the purchaser a clearance certificate issued from the ATO.

A clearance certificate provides certainty to purchasers regarding their withholding obligations as the certificate confirms whether or not withholding tax is not applicable to the transaction.

Deductions may also be allowed if you have rented out the property for a period before it became your main residence or have rented it out after living in the property.  In these cases, capital gains tax and tax deductions will only be applicable to the part of the property for the period when it was rented but not when used as your main residence.

It is the vendor’s responsibility to obtain the clearance certificate and provide it to the purchaser at or before settlement.   

Without a valid clearance certificate, the purchaser will be required to remit 12.5% of the purchase price to the ATO.

How to apply

An Australian resident entity (or their representative) will need to complete an online:

Australian residents not required to lodge tax returns, such as aged pensioners, are still required to obtain a clearance certificate.

As a foreign resident you may be entitled to a variation to the withholding rate, then you can lodge a variation request.

Can I apply for a variation?

Vendors can apply for a variation where:

  • They are not entitled to a clearance certificate

  • a vendor’s declaration is not appropriate

  • 12.5% withholding is too high compared to the actual Australian tax liability on the sale of the asset.

Reasons for a variation include:

  • the vendor will not make a capital gain on the transaction (for example, because they will make a capital loss or a CGT roll-over applies)

  • the vendor will not have an income tax liability (for example, because of carried-forward capital losses or tax losses)

  • a creditor of the vendor has a mortgage or other security interest over the property, and the proceeds of sale available at settlement are insufficient to cover both the amount to be withheld and to discharge the debt the property secures

  • a creditor acquires legal title to the property (that is, becomes the purchaser) as a result of an order for foreclosure, and its security would be further diminished as a result of having to comply with the withholding obligation.

GM Tax also offers the following services:

  • Tax planning advice and guidance with regards to your residency status in Australia.
  • Preparation of Australian tax returns, with all returns submitted to the ATO electronically where possible.
  • Advice on the tax position where a property in Australia is being let while a taxpayer is living overseas.
  • Capital Gains Tax advice and guidance in relation to your Australian assets.
  • Assistance to ensure Australian sourced income of those who are non-residents of the Australia is properly taxed and is not taxed twice, or double taxed.
  • This last point is particularly relevant to those who have Australian sourced income or capital gains which may also be subject to tax in the country in which the taxpayer is now resident.