- The foreign resident capital gains withholding amendments massively increase the number of transactions to which the withholding measure applies but only in relation to acquisitions of property that occur on or after 1 July 2017.
- The exclusion to withhold has been reduced from a market value of $2,000,000 to just $750,000.
- The withholding rate has been increased from 10 per cent to 12.5 per cent of the purchase price.
Treasury Laws Amendment (Foreign Resident Capital Gains Withholding Payments) Bill 2017 passed both houses of
Federal Parliament on 15 June 2017. The Bill’s only impact on the regime, which has been in place since 1 July 2016, is to amend Schedule 1 to the Taxation Administration Act 1953 (‘TAA’) to modify the foreign resident capital gains withholding payments (‘FRCGW’) regime. The amendments:
- increase the withholding rate to 12.5 per cent of the price (sch 1, items 1 and 2, paras 14‑200(3)(a) and 14‑205(4)(a)); and
- reduce the withholding threshold to property with a market value of $750,000 or more (sch 1, item 3, para 14‑215(1)(a)).
These two changes apply only to contracts entered into on or after 1 July 2017 but will massively increase the number of transactions to which the withholding measure applies, both in regional NSW and especially in Sydney where a significant majority of houses and a significant portion of apartments will now be within the ambit of the measure.
Accordingly, practitioners will need to be even more familiar with clause 31 of the standard form of Contract for the sale and purchase of land, copyright in which is jointly owned by the Law Society of NSW and the Real Estate Institute of NSW.
An interim update to the standard contract titled the ‘2016/17 edition’ was released in June 2017. Rather than state a percentage of the price in the definition of ‘remittance amount’ in clause 1 of the contract, the 2016/17 edition adopts a more generic approach and refers to the FRCGW found in s 14-200(3)(a) of sch 1 to the TAA. This will hopefully avoid the need for future changes to the contract if and when government legislates a change to the withholding rate.