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Important change to the foreign resident capital gains withholding tax and the family law implications

Important Change To The Foreign Resident Capital Gains Withholding Tax And The Family Law Implications

Almost precisely 12 months ago, I wrote an article on the then new foreign resident capital gains withholding tax (“FRCGWT”).

One of the impacts of the FRCGWT was that, when a person purchased real estate for $2m or more, the purchaser had to withhold 10% of the purchase price and remit it to the ATO, unless the vendor had a “clearance certificate”.

This had implications for family law property settlements.

Since then, there have been a number of changes to the foreign resident capital gains withholding tax. One was to reduce the relevant value from $2m or more to $750,000 or more. Another was to increase the percentage of the purchase price to be withheld and remitted to the ATO from 10% to 12.5%. For family law, the key change is, that in most cases, the transfer of property in a property settlement is no longer caught up in the FRCGWT regime. There is no longer a need for a person receiving real estate pursuant to a family law property settlement to withhold money and to remit that money to the ATO as long as the transfer is (slightly simplifying it):

  1. Between spouses; and
  2. Under the Family Law Act.

Spouses means:

  • People who are married; and
  • People who are in a de facto relationship, whether same or different sex.

“Under the Family Law Act” means that the transfer is as a result of an order, agreement or award. This is a very good reason why, if you reach an agreement, it should be formalised by either consent orders or a financial agreement.

If you have any questions about the foreign resident capital gains withholding tax, or the value of formalising your property settlement, then please contact our Family Law team headed by Accredited Specialist Alan Wright on 02 4929 3995.



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