Changes to foreign Resident CGT Withholding Tax Rules

Lasts week’s federal budget is being labelled by many as a ‘non-event budget’, however as often is the case, one needs to dig deeper to reveal the finer details, and this budget certainly contained a few unexpected sleepers.

As you may recall from my post last year concerning the then new Foreign Resident CGT Withholding Rules, the federal government had placed a 10% non-final withholding tax obligation squarely upon the shoulders of the purchases of Australian property, when such property was being acquired from a non-resident and where the consideration exceeded a $2 million dollar threshold. This legislation commenced on 1 July 2016 and sent shivers through the system as the stinger in the detail was the default position of the explanatory memorandum, in that all vendors were to be considered a non-resident unless they provided vendors with either an ATO generated clearance or exemption certificate.

The federal government has now proposed changes to this regime by increasing the standard withholding rate from 10% to 12.5% effective 1 July 2017, and moreover, a significant reduction in the withholding obligation threshold from $2 million dollars to $750,000 from 1 July 2017.

This significant change will certainly, and fairly in my mind, ensure that more tax is collected from the sale of property by non-resident taxpayers than ever before, and will significantly increase the compliance in an area where voluntary compliance has historically been sadly lacking. It will also however place additional compliance obligations on the sale of many properties by everyday Australian Residents (particularly those in our capital cities), who will need to effectively register the sale of their property with the ATO by their need to now obtain a clearance certificate on the sale of lower value properties. Interestingly, providing the ATO with their very own database of property sales without having to rely upon data sharing arrangements with the various state land tax offices.

Other proposed changes relating to property announced in the 2017 federal budget included:

a. A new obligation for purchasers of newly constructed residential property or subdivisions to remit the GST on acquisition directly to the ATO instead of to the developer (to be effective 1 July 2018).

b. Restrict the ability to claim deprecation on plant and equipment in rental properties, to those items directly purchased by the investor, but excluding items acquired from the previous owner as part of the acquisition (to be effective 1 July 2017).

c. Removal of the ability to claim travel expenses to inspect your rental property (to be effective 1 July 2017).

d. A new vacant housing charge on residential property acquired in Australia by foreign nationals if the acquired property is left vacant (proposed effective for property acquired post 9 May 2017).

e. The proposed removal of the CGT main residency exemption for foreign or temporary residents.

f. 60% CGT discount entitlement for investing in affordable housing.


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