Tax Update – August

Client Update - August 2017

Foreign Resident Capital Gain Withholding

For properties purchased, not settled, after 1st July 2017 that have a contract price of over $750,000 (previously $2,000,000) will be subject to Foreign Resident Capital Gain Withholding (FRCGW).

Purchasers of any properties, whether it be residential or commercial, will have to withhold 12.5% (previously 10%) of the property price from the vendor.

If you are an Australian Resident and you are selling a property and don’t want your money to be withheld from you, you will need to apply for a Vendor Clearance Certificate (VCC) from the ATO stating that you, the owner of the property, are not a relevant foreign resident and present it to the purchaser, in most cases the VCC will be issued fairly quickly and is valid for 12 months.

This ruling applies to everyone in Australia, unless the vendor has presented the VCC, the purchaser has the responsibility to withhold 12.5% from the vendor and pass it to the ATO. If the purchaser fails to do so, the Commissioner may penalise the purchaser for the 12.5%, meaning effectively the purchaser will have to pay the 12.5% on top of the property’s sale price.  

Deductible Expenses Relating to Investment Property

Travelling Expense
From 1st July 2017, travelling expenses such as inspecting, maintaining and collecting rent in relation to investment properties will not be deductible.

Plant and Equipment Depreciation
This ruling applies to owners of established residential rental properties, on or after 10/5/2017, where plant and equipment depreciation in relation to assets acquired through the purchase from a previous owner will not be tax deductible in FY17-18.

Plant and Equipment (also known as Division 40 assets) are defined as assets that can be easily removed from a property such as refrigerators and security systems, and are not structural in nature.

However, this ruling will not apply to owners who had purchased brand new residential rental properties on or after 10/5/2017 as the first owners of the property, and will not apply to owners of the residential rental properties acquired before 10/5/2017.  

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