Are you an Australian resident selling a property? Will the sale price to be more than $750,000?
If so, you will be need to provide a Foreign Resident Capital Gains Withholding Clearance Certificate (FRCGWCC, or ‘clearance certificate’) to purchasers prior to settlement.
What is a clearance certificate?
From 1 July 2017 onwards, legislation requires 12.5% of the purchase price (Capital Gains Withholding Tax) to be withheld and paid to the Australian Tax Office (ATO) for contracts with a purchase price of more than $750,000. However, vendors can be exempted from this by applying for a clearance certificate from the ATO.
The clearance certificate notifies the purchaser and the ATO that the Capital Gains Withholding Tax does not need to be withheld from the proceeds of the sale.
Who needs a clearance certificate?
All vendors listed on the Certificate of Title will require a clearance certificate each. A clearance certificate is valid for 12 months from the date of issue.
Clearance certificates can take up to 28 days to issue and therefore should be applied for as soon as possible.
How does it affect the purchasers and vendors?
As previously mentioned, if the clearance certificate has been obtained, purchasers will not be required to withhold 12.5% of the purchase price from the property settlement transaction. This also means vendors will be able to receive full settlement proceeds of at settlement.
However, in a sale of a $800,000 property for example: if the vendor fails to provide a clearance certificate, the purchaser must now withhold $100,000 to pay the ATO. This means the vendor will only receive $700,00 and can only claim back the 12.5% when they lodge their next income tax return. This poses a potential inconvenience to both the purchaser and vendor.
How can W Legal Group help?
At W Legal Group, our team of experts can assist you with your FRCGWCC application to avoid potential delays and ensure all purchaser and vendor obligations are met. Reach out to us at firstname.lastname@example.org or call us at +61 3 9590 618 to find out more!