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Capital gains withholding, a new threshold – What you need to know

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Capital gains withholding, a new threshold

From 1 July 2017, where a foreign resident disposes of Australian real property with a market value of $750,000 or above, the purchaser will be required to withhold 12.5% of the purchase price and pay it to the ATO unless the seller provides a variation (this is referred to as ‘foreign resident capital gains withholding’).

However, Australian resident vendors who dispose of Australian real property with a market value of $750,000 or above will need to apply for a clearance certificate from the ATO to ensure amounts are not withheld from their sale proceeds.

Therefore, all transactions involving real property with a market value of $750,000 or above will need the vendor and purchaser to consider if a clearance certificate is required.

The following is from the ATO’s website:

  • Australian resident vendors can avoid the 12.5%  withholding by providing one of the following to the purchaser prior to settlement:
    • for Australian real property, a clearance certificate 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.

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