Property and Tax Alert: Federal Budget Changes to Foreign Resident CGT Withholding Rules

May 11 2017

Publications

Changes to the foreign resident CGT withholding rules were announced in this week’s federal budget with effect from 1 July 2017:

Currently From 1 July 2017
Market value threshold below which CGT withholding does not apply (for “direct” interests in land – i.e. freehold / leasehold / company title) $2,000,000 $750,000
Withholding rate (for both “direct” and “indirect” interests in land) 10.0% 12.5%

The new rules will apply to:

  • sale contracts signed on/after 1 July 2017; and
  • for “direct” interests in land – contracts signed before 1 July 2017 where the purchaser obtains possession (e.g. under a licence) before completion but on/after 1 July 2017.

Currently the $2,000,000 market value threshold means that most property transactions are unaffected by the CGT withholding rules.  With the reduction of this threshold to $750,000, Clearance Certificates will be required for a much larger proportion of transactions.  The existing Clearance Certificate procedures remain unchanged.

Particular care will be required in the case of a sale by auction where it is not known in advance whether the price will reach $750,000.  For auctions anticipated to achieve a price around this level, both the vendor and purchaser should assume that the market value threshold will be reached and plan accordingly.

The following chart sets out the interaction between market value and GST for the purposes of the CGT withholding rules:

Jeff Chang Flowchart500x500px

 

For further information please contact:

Jeffrey Chang | Partner | +61 3 8080 3574 | jchang@tglaw.com.au

David Beer | Partner | +61 8 8236 1125 | dbeer@tglaw.com.au

Tom Boyce | Partner | +61 2 9020 5710 | tboyce@tglaw.com.au

Melinda Graham | Partner | +61 2 8248 3410 | mgraham@tglaw.com.au

Eu Ming Lim | Partner | +61 3 8080 3606 | elim@tglaw.com.au

Chris O’Shea | Partner | +61 7 3338 7526 | coshea@tglaw.com.au

Sian Rees | Partner | +61 8 8236 1356 | srees@tglaw.com.au

Vicki Sharp | Partner | +61 3 9641 8668 | vsharp@tglaw.com.au