Important changes to the foreign resident capital gains withholding tax regime - 12 June 2017

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. 

This alert written by Partner, Tammy Berghofer and Associate, Janelle Metcalf looks at the upcoming changes coming into effect and how they will affect buyers and sellers.

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.

For more information or discussion, please contact HopgoodGanim Lawyers’ Commercial Property or Taxation team.

HopgoodGanim Lawyers is a full service commercial law firm. Our firm has 41 partners and more than 280 staff. We operate nationally and internationally with a focus on Asia from our two key locations of Brisbane and Perth. We offer highly skilled and agile legal teams across key sectors and areas of practice. In all of our areas of speciality, our lawyers are recognised by legal publications as leaders in their fields.