Foreign investors required to pay tax upfront when buying property

All purchasers of Australian real property will be impacted by the new foreign resident capital gains tax withholding regime which comes into effect from 1 July, 2016.

According to Expat Advisors Community member Jennifer Yeo, the changes aim to address the currently low tax compliance of foreign residents who dispose of real property.

Overseas investors buying Australian property will be subject to a 10% withholding tax at time of purchase on properties worth more than $2M.

Jennifer Yeo - Expat Advisors Community

The balance of any CGT liability will be payable when they dispose of the property. Unlike Australian tax residents, foreign investors do not receive the 50% tax exemption so pay Australian marginal tax on the total gain.

Australian residents will need to apply to the ATO for a Clearance Certificate ahead of sale to produce at settlement to ensure they are not subject to the tax. The certificate will be valid for 12 months.

Note the new tax regime does not apply to ASX listed property or managed funds.

For details on the new rules and application, check out the article by Jennifer Yeo, Special Counsel, Mills Oakley Lawyers here.