Foreign Resident Capital Gains Withholding (“FRCGW”) applies to the sale of residential property in Queensland by foreign residents, whereby a withholding tax of 12.5% is applied to the contract price of the property being sold.
Under this system, when a foreign resident disposes of property, this amount must be withhold from the vendor and paid to the Australian Tax Office (“ATO”). The foreign resident must then lodge a tax return at the end of the financial year, which discloses their Australian assessable income, including any capital gain from the sale of the property, and may at this point claim a credit for the 12.5% of the contract price that is withheld is eligible.
From 1 July 2017 the threshold for the requirement to provide a clearance certificate has been reduced from $2,000,000 to $750,000. The reduction in the threshold means that any Australian citizen or permanent resident vendor, selling a property with a contract price of $750,000 or greater is now obligated to provide the clearance certificate to the purchaser prior to settlement in order to be exempt from the withholding tax applying to them.
If this certificate is not provided to the purchaser prior to settlement, then they purchaser must withhold an amount of 12.5% of the contract price from the vendor and pay this to the ATO.
A vendor must apply directly to the ATO for a clearance certificate, or it can be completed by a solicitor as part of the conveyancing process. Each vendor must apply for a separate certificate for the property and provide these to the purchaser prior to settlement. A clearance certificate is valid for a period of 12 months. A clearance certificate will be issued by the ATO within 14 to 28 days of submission, so it is important this process is completed either shortly after a property is listed, or immediately after entering into a contract of sale on the property.
It is the responsibility of the vendor to provide the required certificate clearance to the purchaser prior to settlement and if not provided they purchaser is obligated to withhold the relevant amount from the vendor at settlement.