Sell Property in Australia

Foreign Resident Capital Gains Withholding is an important aspect to consider when selling real estate located in Australia as a foreign resident for Australian tax purposes. In such cases, the purchaser is generally required to withhold 12.5% of the purchase price and send it to the Australian Taxation Office (ATO). This withholding is known as Foreign Resident Capital Gains Withholding (FRCGW). It is essential to understand this tax requirement to avoid any unexpected financial and settlement issues.

Understanding the Foreign Resident Capital Gains Tax

The Foreign Resident Capital Gains Withholding (FRCGW) can come as a shock to Australian expats who are non-resident sellers. It may leave them unable to discharge their mortgage on sale and create complications during the settlement process. Additionally, it can tie up funds that were intended for other purposes.

It is important to note that FRCGW does not apply to properties selling for less than $750,000. However, for properties where it applies, the withholding amount will be a minimum of $93,750. For example, if a property is selling for $1 million, the FRCGW would be $125,000.

The withheld tax serves as a provision for the seller and is used to reduce any Australian tax payable when the seller completes their Australian tax return. Depending on the ultimate capital gain and any applicable concessions, such as the main residence exemption or capital gains tax (CGT) discount, additional tax may need to be paid, or a refund may be due.

Timing of Tax Returns

Typically, taxpayers need to wait until the end of the tax year (30th June) to lodge their Australian tax return. This means that individuals who sell a property early in the tax year (e.g., July) may have to wait over a year to lodge their tax return and reclaim any over-withheld amount.

Options for Sellers

There are options available for Australian expat sellers, but it is crucial to ensure that your tax affairs are in order as all paperwork needs to be finalized before the property settlement.

1. Clearance Certificate: If you have recently returned from overseas and are an Australian tax resident at the time of sale, you can apply for a ‘clearance certificate’ to waive the FRCGW requirement.

2. Variation of Withholding Amount: If you are not an Australian tax resident, you may apply for a variation of the withholding amount down to the actual tax due on the sale. This involves calculating the cost base of the property and considering factors such as costs incurred in buying or selling the property, ongoing holding costs, and any capital works deducted over the ownership period. If the property was your main residence or had periods of Australian tax residency, there may be a reduction in the CGT amount due to the main residence exemption or CGT discount. The ATO will also consider other reasons that the tax due may be below 12.5%, such as carried forward accumulated capital or revenue losses.

Expert Assistance

At https://downunderrealty.com, our specialist team can assist you in understanding your tax obligations when selling your property in Australia. We offer the following services:

• Assessing your Australian tax residency
• Calculating the capital gain
• Preparing a clearance certificate or FRCGW variation
• Preparing and lodging outstanding tax returns
• Liaising with the ATO on your behalf

If you are planning to sell a property in Australia as a foreign resident, it is important to seek professional guidance to ensure compliance with the tax requirements and optimize your financial outcomes. Contact us to discuss your situation and receive expert assistance.