Tax Bites: Varying the rate of foreign resident CGT withholding

Many of us will have clients that are non-residents of Australia that hold real estate in Australia.

In accordance with the foreign resident CGT withholding regime, where non-residents of Australia sell real estate for a value of $750,000 or greater, the non-resident vendor will not be eligible to receive a CGT withholding clearance certificate from the ATO meaning that by default, the purchaser will be required to withhold 12.5% of the capital proceeds of sale in the form of foreign resident CGT withholding tax.

However, while the vendor may be a non-resident and may be therefore unable to obtain a CGT withholding clearance certificate, the vendor is still eligible to apply for a variation of the CGT withholding rate of 12.5%.

For example, where the foreign resident vendor has previously lived in the property and is still eligible to treat the property as their principal place of residence under the six year absence rule, the foreign resident vendor could apply to vary that rate of withholding from 12.5% to nil.

Similarly, where the foreign resident vendor has carry forward tax losses or is eligible to apply the 50% CGT discount concession for any pre-May 2012 capital appreciation on the property, the actual tax liability on the capital gain derived by the foreign resident vendor may be significantly less than 12.5% of the total capital proceeds received from the sale.  In these circumstances, while the foreign resident vendor is unable to obtain a CGT withholding clearance certificate from the ATO, the foreign resident vendor may still wish to apply to the ATO to vary the rate of withholding from 12.5% to the lower amount.

If you have any further questions, please do not hesitate to contact Tim Olynyk on (03) 9810 0700 or at t.olynyk@banksgroup.com.au.

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