Capital Gains Withholding is the Australian Taxation Office’s (ATO) withholding law that imposes an obligation on foreign residents to pay tax liabilities related to any sale of Australian property and other taxable assets.
Foreign residents who sell specific asset types such as taxable Australian real property that has a market value of at least $750,000 or indirect Australian real property interests are obligated to pay 12.5% of the purchase price to the ATO.
Also called the Foreign resident capital gains withholding (FRCGW), this also applies to foreign vendors who acquire a lease with a market value of at least $750,000.
Capital gains withholding must be lodged at the end of the financial year. The foreign resident vendor must declare their Australian assessable income which includes the profit made from selling their asset.
How to avoid or reduce paying capital gains withholding
Australian residents who are looking to sell property can request a clearance certificate from the ATO by filling up the ATO’s clearance certificate application for Australian residents here. The request should be completed at least 14 days before the settlement to ensure that they don’t have to pay the 12.5% capital gains withholding cost.
Foreign residents cannot request a clearance certificate. They will need to lodge a tax return and claim a credit for any withholding amount paid to the ATO.
However, they may be entitled to a variation to the withholding rate which can reduce the cost of capital gains withholding.
The ATO’s variation form can be accessed here. Similar to clearance certificates, it is best to get a variation request in as early as possible to give them ample time to provide the required information that’s needed to finalise the claim.
Capital gains withholding is basically another method of collecting tax liabilities from foreign residents. To get the most out of your capital gains withholding, talk to a professional Chan & Naylor tax accountant. We will be more than happy to assist you.
Aside from capital gains withholding compliance, have a look at our other accounting and advisory services that we do to help you achieve greater success.
Chan & Naylor Group has nationwide offices in North Sydney, South West Sydney, Sydney, Pymble and Parramatta in New South Wales, Melbourne, Moonee Ponds and Hawthorn in Victoria, Brisbane and Capalaba in Queensland, and East Perth in Western Australia that can assist you with your capital gains withholding compliance as well as any other business or personal tax enquiry that you may have. Contact us today.
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