Dear ATO,
I am seeking clarification on the capital gains tax and foreign resident withholding tax implications of a hypothetical Australian property sale involving both Australian tax residents and a foreign tax resident.
Hypothetical scenario
- An Australian residential investment property was purchased in the 2012 financial year for a cost base of $200,000.
- The property is owned by three individual vendors, each holding an equal one-third interest (33.33%).
- At the time of purchase, all vendors were Australian residents for tax purposes.
- In the 2021 financial year, one vendor ceased to be an Australian tax resident after emigrating overseas. The other two vendors have remained Australian tax residents at all times.
- The property is sold in the 2026 financial year for $600,000 net of costs, resulting in a total capital gain of $400,000.
Questions for clarification
Under this scenario, I would appreciate guidance on the following points:
1) Foreign Resident Capital Gains Withholding (FRCGW): Does the FRCGW obligation apply to the entire sale price of the property for all vendors or only to the foreign resident vendor’s one-third share? I.e., would 15% or the amount determined by the ATO be taxed on the full $600,000 or the foreign vendor's portion of $200,000?
2) CGT discount apportionment for the foreign resident vendor: Given the property was held for 15 financial years, but the relevant vendor was an Australian tax resident for 9 of those years and a foreign resident for 6 years, how is the CGT discount (if any) apportioned for that individual? Is there any calculator or tool to help work this out?
3) If a non-resident pays FRCGW to the ATO at/before settlement: Will that non-resident have an opportunity to "settle" their tax affairs and determine the final tax debt/amounts payable by the ATO back to the non-resident taxpayer incurred for that asset during the financial year it is sold (i.e. for rental income, expenses, capital works, apportioned CGT discounts, closing costs etc.)?
This scenario is provided purely for illustrative purposes to better understand how the relevant tax provisions operate where Australian and foreign tax residents are joint vendors of the same property.
Thank you for your assistance.
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