From 1 July 2017, the number of transactions subject to the foreign resident capital gains withholding tax (FRCGWT) requirements will increase as a result of changes to the rate and threshold from that date.
What is the foreign resident capital gains withholding tax?
The FRCGWT requirements commenced on 1 July 2016.
Our previous alert from May last year outlined what transactions are caught, how the threshold is assessed and how the FRCGWT applies to options to purchase as well as family law and matrimonial matters.
What is changing?
From 1 July 2017:
- the withholding rate will increase from 10% to 12.5%; and
- the withholding threshold will decrease from $2 million to $750,000.
These changes will apply to acquisitions of property occurring on or after 1 July 2017, but will not affect contracts or agreements previously entered into prior that date, which have settlements or transfers due after on or after 1 July. A purchaser is generally taken to have acquired an asset on the date it entered into the contract to acquire it.
What is the impact of the changes?
The impact of the changes is twofold:
- if the obligation to do so arises, the increased withholding rate will require a greater percentage of the purchase price (or market value) of the property being transferred to be withheld; and
- the reduced threshold will result in a much greater number of transactions being subject to the withholding requirements.
For transactions of $750,000 or higher, buyers and sellers need to be aware of, and adhere to, the requirements; whether that be for a buyer to withhold the required funds, or for a seller to provide a clearance certificate.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.