Foreign resident capital gains withholding is a federal system designed to help collect tax that may be payable by a foreign resident vendor. For relevant transactions, the purchaser withholds the prescribed amount from the money otherwise payable to the vendor at settlement and remits it to the Australian Taxation Office (ATO). The vendor can then claim the amount as a credit when their tax position is assessed.
A vendor who is an Australian resident should generally obtain an ATO clearance certificate and provide it to the purchaser before settlement. The certificate relates to the vendor named on it and must be current. Where there are multiple registered vendors, the purchaser should ensure that the required certificates cover each vendor. If the vendor is foreign resident or a variation is needed, the ATO may issue a variation notice that changes the amount to be withheld.
The withholding rules are separate from GST withholding, which can apply to certain new residential premises and potential residential land. Both regimes can apply to the same transaction, so the settlement statement and electronic workspace must deal with each obligation separately.
This is the kind of matter CMK Legal's property and conveyancing team handles.
Do not assume the withholding regime is irrelevant because the property is below an old threshold or because the vendor says they are an Australian resident. Confirm the current rules and obtain the required clearance certificate or variation notice before settlement.
Law referenced: *Taxation Administration Act 1953* (Cth), sch 1, subdiv 14-D. Current official guidance: https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/foreign-residents-and-capital-gains-tax/foreign-resident-capital-gains-withholding