Will the 12.5% withholding’s tax affect Expats?
Foreign residents do not receive a tax-free threshold and will therefore pay tax at 19 cents on the first $18,200 (which is tax free for Australian residents). Normal rates apply thereafter.
This aside, in 2016 a withholding tax of 10% on the sale of a home to foreign investors was introduced for properties selling at $2 million-plus. The latest budget papers announced the threshold would be dropped to $750,000 and the tax would be increased to 12.5% to improve “the integrity of capital gains tax rules for foreign investors”.
Only a resident taxpayer can obtain a clearance certificate, therefore citizens who leave the country “permanently” and considered foreign residents for taxation purposes would not be granted a clearance certificate from the ATO if they apply.
In other words, an expat with a $1 million property would only receive $875,000 after the 12.5% withholding rate was paid to the ATO.
The main residence capital gains tax exemption has also been stopped for foreign and temporary tax residents (although those who held property before the Budget announcement are allowed to claim the exemption until 30 June 2019).
Whilst bleak it is not all bad news for expats. A spokesman for the Treasury said individuals returning to Australia and re-establishing their tax residency “will not be affected” when they sell.
In other words, expats thinking about selling property will need to plan ahead if they want to avoid the 12.5% withholding’s tax and/or keep the CGT exemption on their principal place of residence.