It’s important to understand the actions required and the implications of Foreign Resident Capital Gains Withholding (FRCGW) if you are selling real estate in Australia. Read on to learn more, or contact our conveyancing team for more information.
Overview:
- What is Foreign Resident Capital Gains Withholding?
- Why do we have FRCGW?
- What is a FRCGW Form?
- Timeframe considerations
What is Foreign Resident Capital Gains Withholding?
Foreign resident capital gains withholding is an Australian tax of 12.5% that applies to vendors selling property where the contract price is $750,000 or more.
Why do we have a Foreign Resident Capital Gains Withholding Tax?
In short, this tax was created to hold a percentage of funds from the sale of assets by foreign residents to make sure they pay their tax obligations to Australia.
With foreign residents, it can be costly to recover money should they leave Australia, so this withholding tax ensures the Treasury has access to some funds to mitigate that risk.
Did the rules change?
Yes. Initially, from 1 July 2016, Foreign Resident Capital Gains Withholding only applied to real property transactions contracted at over $2 million dollars, so it affected relatively few transactions in South Australia. With the lowering of the threshold from 1 July 2017, its impact is now broader. FRCGW applies to all Vendors in South Australia who are selling property with a contract price of $750,000 or more.
If you’ve entered into a contract on or since Saturday, July 1, 2017, and from this point forward, you WILL be affected by these taxation changes.
What is a Foreign Resident Capital Gains Withholding Clearance Certificate (FRCGW Form)?
Vendors are required to apply for a Clearance Certificate to avoid having a tax of 12.5% of the purchase price withheld from their property proceeds. You can apply for the certificate using this ATO link or, in the case of clients of Eckermann Conveyancers, we are able to obtain a clearance certificate on your behalf.
Foreign Resident Capital Gains Withholding Certificate timeframe considerations
Once you have applied for the FRCGW Certificate, receipt can take up to 21 business days, so the vendor or their conveyancer needs to apply as soon as practicable following the execution of the contract of sale. This is particularly important in the case of shorter settlements as time is of the essence. Regardless of the length of settlement, it is prudent to apply as soon as you know the contract price is $750,000 or more.
Usually, the process is quite straightforward. However, if the vendor has not lodged a tax return within the previous two years, or they have a tax debt, the application is allocated to a different section of the Australian Taxation Office. We have seen this result in extensive delays. There is no escalation process in these instances, so this will simply require waiting in line until your time comes.
In the event that the FRCGW Certificate has not been received prior to settlement, the settlement process can still proceed. However, thepurchaser’s conveyancer is required to withhold 12.5% of the sale price from the vendor’s portion and pay this to the ATO at settlement. This is an obvious inconvenience and if the vendor is subsequently eligible for a credit of the12.5%, that refund will be processed in the next financial year when the vendor or their tax agent submits their next tax return. It cannot be processed beforehand.
<h2″>How your conveyancer can make life simpler
The Eckermann Conveyancers team is already well versed in these new changes and can advise you on your liabilities and responsibilities from this point forward.
There are some actions we encourage our clients to ask us to take when selling or buying property in the era of these new Foreign Resident Capital Gains Withholding Payments rules. For buyers:
- Check for a Clearance Certificate from the vendor, or the vendor’s conveyancer, on or before settlement
- In the absence of a certificate, ensure 12.5% of the purchase price is withheld and funds transferred to the ATO
For sellers: apply for a Clearance Certificate from the ATO as soon as possible, even before listing a property for sale. It will remain valid for 12 months and take one extra hurdle away from the sale and settlement process.
While it sounds straightforward in isolation, remember this is just one consideration amid the raft of regulations, checks and fees your conveyancer is managing on your behalf during the settlement process.
If you have any questions in relation to FRCGW, speak with your client manager at Eckermann Conveyancers or contact us at enquiries@eckermanns.com.au.