KEY TAKE OUTS:
- Changes to foreign resident capital gains withholding for Australian and foreign residents from 1 January 2025
- How does foreign resident capital gains withholding apply
Selling a property? Changes have come into effect from 1 January 2025 which may impact you. The changes that have come into effect relate to foreign resident capital gains withholding and contrary to what you might think, applies to all individual and non-individual sellers, irrespective of whether you are foreign.
For those who are Australian residents for tax purposes i.e. not foreign, you are required to obtain and provide to the Purchaser on or before settlement, a valid clearance certificate issued by the ATO. If you do not provide a valid clearance certificate to the Purchaser on or before settlement, 15% of the price of the property must be withheld from the sale proceeds and paid to the ATO.
For those who are foreign residents, you may incur capital gains tax on the sale of property in Australia. Purchasers must withhold 15% of the price from the sale of the property and remit this to the ATO toward payment of this liability upon completion of the sale of the property. 15% of the price is to be withheld and remitted upon completion, unless the foreign resident Vendor has a variation notice which specifies a reduced rate of withholding.
So what are the changes?
- Prior to 1 January 2025, the percentage of the sale price that was payable to the ATO where the Vendor was foreign was 12.5%.
- From 1 January 2025, this has increased to 15%.
- Prior to 1 January 2025, the obligation for Australian residents to obtain a valid clearance certificate only applied where the sale price of their property was $750,000 or above.
- From 1 January 2025, the obligation for Australian residents to obtain a valid clearance certificate applies in the case of every property, irrespective of the sale price.
- Prior to 1 January 2025, the obligation to withhold and pay 12.5% of the price to the ATO where the Vendor was foreign, only applied where the sale price of their property was $750,000 or above.
- From 1 January 2025, the obligation to withhold and pay 15% of the price to the ATO where the Vendor is foreign, applies in the case of every property, irrespective of the sale price.
Need a practical example? Here’s something I prepared earlier…
Kim is a foreign resident. Kim sold her property to Sharon for $1,200,000. Kim and Sharon entered into the Contract on 20 December 2024. The completion period on the Contract is 42 days, meaning settlement falls due on 31 January 2025.
Given the Contract was entered into before the changes came into effect i.e. before 1 January 2025, Sharon must withhold 12.5% of the $1,200,000 being $150,000. If the Contract was entered into after 1 January 2025, Sharon would be required to withhold $180,000 (being 15% of the price).
In summary, under the changes:
- The rate of withholding for foreign residents has increased from 12.5% to 15% of the sale price
- The $750,000 threshold has been removed and withholding/clearance certificates now apply to all property sales
ABOUT MELINA MAIOLO
Melina joined the Coutts team in 2010 working as a Licensed Conveyancer within our Property & Conveyancing team, based out of our Campbelltown office. Her commitment to client services saw her progress further and into the role of a Senior Licensed Conveyancer in July 2022.
She graduated with a distinction in the Advanced Diploma of Conveyancing and is accredited with the Australian Institute of Conveyancers NSW.
For further information please don’t hesitate to contact:
Melina Maiolo
Senior Licensed Conveyancer & JP
info@couttslegal.com.au
1300 268 887
This blog is merely general and non-specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.
