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Foreign resident capital gain withholding and the tax return

Posted by Northadvisory on July 23, 2018

The foreign resident vendor must lodge a tax return at the end of the financial year declaring:

  • their Australian assessable income, including any capital gain from the disposal of the asset
  • whether the vendor will claim a credit for any withholding amount taken from their sale proceeds (for example, because they didn’t provide the purchaser with a clearance certificate).

A credit may be refunded in the relevant tax return if they don’t have to pay capital gains tax on the sale of the property (for example, because it was their main residence).
A foreign resident will need to apply for a TFN before they lodge an Australian tax return to ensure they can claim a credit for the amount withheld and paid to the ATO by the purchaser.
In certain circumstances, an early tax return may be submitted. If a foreign resident vendor is not eligible to submit an early tax return, they must wait until the end of the financial year to submit it and receive a tax credit for the withholding paid by the purchaser.

Applying the credit
We will only apply the credit to the vendor when the:

  • purchaser has paid the withholding to us
  • vendor has lodged an Australian income tax return claiming the credit.

Before the tax refund or payable is finalised on the tax return the credit is evaluated by the Foreign investment Review Board (FIRB) as well as the ATO once the return has been lodged.

We’ll give vendors confirmation that a withholding payment has been paid on their behalf.

In situations where the contract is signed in one financial year but the purchaser pays the withholding in the next financial year, we will apply the Commissioner’s Remedial Power to allow the vendor to claim the credit in the same tax return in which they need to declare the capital gain.

When the purchaser withholds but doesn’t pay it to us
The vendor cannot claim a credit for the withholding until the purchaser pays the withholding to us.

We will promptly take action to collect from the purchaser any withholding amount not paid by the due date.

If the vendor is concerned the purchaser may not pay the withholding, the vendor should seek legal advice.

If you have questions on any of the above issues raised, please do not hesitate to contact us.

Kim Edwards
Chartered Tax Adviser
Chartered Accountant
T: 02 9984 7774
E: kime@northadvisory.com.au