You’re not an Australian Citizen until the ATO says you are.

From 1 July, all home owners selling a property worth more than $$750,000 ( down from $2 ) will have to obtain certification from the ATO proving their residency, or face a 12.5% withholding tax ( up from 10% ).

In the latest of a raft of measures aimed at cracking down on foreign property investors, the ATO will now require all owners selling a property worth more than $750,000 ( down from $2m ) to obtain certification of their residency.

Even those born in Australia and considered an Australian Citizen for other taxation purposes will be deemed a foreign resident if they do not obtain certification of their residency at the time of sale. Yes, it’s as silly as it sounds.

The flow on effects may be interesting also as the ATO may use the opportunity to recover debts that a home seller may have with the ATO. You may not want to have any outstanding tax returns upon settlement of your home or investment property.

Audits may also become more frequent.

Failure to obtain the necessary documents will result in the owner paying a 12.5% ( up from 10% ) withholding tax when they sell their property.

The measure is designed to clamp down on foreign property owners who avoid paying capital gains tax when they sell Australian properties. In the vast majority of cases however, it will simply complicate the process of selling one’s home.

The move comes amid a slew of measures aimed at curbing foreign property investors.

All four of the major banks have curbed lending to foreigners, and Citigroup’s local arm will no longer approve mortgage applications that rely on income in five Asian currencies.

The Foreign Investment Review Board has also cracked down on unlawful purchases, forcing foreigners to sell 27 properties worth more than $76 million.

The impact will be felt most strongly in Sydney and Melbourne. Almost 4.5% of homes on the market in NSW are worth more than $2m, and almost 2.5% in Victoria.

 

Direct from the ATO

Foreign resident capital gains withholding payments – impacts on foreign and Australian residents

On 9 May 2017, the Government announced proposed changes to the foreign resident capital gains withholding (FRCGW) rate and threshold. The changes will apply to contracts entered into on or after 1 July 2017:

  • for real property disposals where the contract price is $750,000 and above (currently $2 million)
  • the FRCGW withholding tax rate will be 12.5% (currently 10%).

The existing threshold and rate will apply for any contracts that are entered into before 1 July 2017, even if they are not due to settle until after 1 July 2017.

Background

Broadly, where a foreign resident disposes of certain taxable Australian property, the purchaser is required to withhold an amount from the purchase price (see note below) and pay that amount to the Australian Taxation Office (ATO).

Note: the legislation specifies that the withholding is actually on the “first element of the cost base”. However, as purchase price is understood by vendors and purchasers, and in many instances will equate with the “first element of the cost base”, we have used the term purchase price for simplicity.

Legislation and supporting material

Legislation is currently being developed for this proposed change.

For transactions prior to 1 July 2017 the threshold and rate as stated in Tax and Superannuation Laws Amendment (2015 Measures No. 6) Act 2016External Link will apply.

Information on the application of the FRCGW is available on the ATO website and via the following links:

More information

 

 

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