Changes to Foreign Resident Capital Gains Withholding Tax Rate and Threshold
The withholding tax rate for capital gains under the regime for non-residents is proposed to increase from 12.5% to 15%, with the property value threshold of $750,000 being proposed for removal, effectively reducing it to nil.
Key Information:
Currently, the regime mandates that purchasers withhold 12.5% of the transaction proceeds when a non-resident vendor disposes of a taxable Australian property asset valued at $750,000 or more. The Exposure Draft legislation introduces measures previously announced by the Federal Government as part of the 2023-24 Mid-Year Economic and Fiscal Outlook (MYEFO), which include:
- Increase in the Foreign Resident Capital Gains Withholding (FRCGW) rate: For applicable Capital Gains Tax (CGT) assets, the rate is proposed to rise from 12.5% to 15%.
- Removal of the $750,000 threshold: This threshold currently triggers withholding for transactions involving taxable Australian real property or an indirect Australian real property interest. The removal will mean that withholding applies regardless of the transaction value.
These changes do not alter the exemption from FRCGW where the vendor obtains a clearance certificate from the Commissioner of Taxation confirming they are not a foreign resident, or provides a residency declaration, or a declaration that the asset is not an indirect Australian real property interest.
Impact of the Proposed Changes:
The government’s rationale for increasing the FRCGW rate from 12.5% to 15% is to better capture capital gains, particularly in light of rising property prices in recent years.
The elimination of the $750,000 threshold will require purchasers to withhold 15% tax on all transactions involving the disposal of taxable Australian real property or indirect Australian real property interests unless vendors provide an ATO clearance certificate or a relevant declaration.
Proposed Implementation Timeline:
The proposed changes, if enacted, will apply to CGT events occurring from the later of 1 January 2025 and the commencement date of the amending Bill.
