Foreign resident capital gains withholding and the tax agent services regime

If you are a conveyancer, you may be aware that foreign resident capital gains withholding (FRCGW) apply to vendors disposing of certain taxable Australian property under contracts.

You could be impacted by the Tax Agent Services Act 2009 (TASA) if your clients are affected by these rules.

This means you may need to register with the Tax Practitioners Board (TPB) when assisting your clients to meet the requirements under the FRCGW measure.

Changes to foreign resident capital gains withholding

New rules apply to Australian resident vendors selling real property under contracts entered from 1 July 2017.

If the contract price is $750,000 or more, Australian resident vendors will need to obtain a clearance certificate from the Australian Taxation Office (ATO) prior to settlement, to ensure that the 12.5% non-final withholding is not withheld from the purchase price.

Previously a 10% non-final withholding rate applied for a contract price of $2 million and above for transactions entered between 1 July 2016 and 30 June 2017.

Foreign resident vendors may apply for a Variation of the withholding rate in certain circumstances.

Purchasers are then required to pay the amount withheld at settlement to the ATO. Depending on whether a conveyancer’s client is the vendor or purchaser, the following foreign resident capital gains withholding forms may need to be completed and submitted to the ATO:

1. Clearance certificate application
2. Variation application
3. Purchaser payment notification.

The TPB considers there are sections of the Clearance certificate application and Variation application that involve the provision of a tax agent service. If you complete and submit these forms to the ATO on behalf of a client for a fee or other reward, you may need to be registered with the TPB.

Refer to Summary of the requirements under the TASA and options available to conveyancers section below for more information.

What does this mean

Clearance certificate and Variation application

Completing and submitting a Clearance certificate or Variation application on behalf of clients for a fee or reward may constitute a tax agent service which can only be done by a registered tax agent or an Australian legal practitioner.

If your client asks you to complete and submit these forms to the ATO and you are not a registered tax agent or Australian legal practitioner, you need to make it clear to your client that you are the transmitter of data to the ATO and not the provider of a tax agent service. Furthermore, you should advise that you can assist your clients with data entry only and you can undertake the following steps for them:

• provide the client with a hard copy of the relevant form for them to complete (you cannot assist the client to complete the form)
• enter client-provided information from a hard copy form into the ATO’s online environment (for example, data entry)
• transmit the information you have entered into the ATO’s online environment.

Importantly, to provide the above assistance, you need to have appropriate procedures/processes in place to ensure that you are not regarded as providing a tax agent service. Such procedures/processes should include, amongst others:

• providing a mechanism for your client to review the data about to be transmitted and to verify the correctness and appropriateness of that data for transmission (you will need to retain evidence of this verification), or
• you retaining, and providing to the client, a hard copy of the client signed form and evidence of the transmission to the ATO.

Further, you should have an appropriately worded declaration to make it clear to your clients that you are not a registered tax agent or Australian legal practitioner, and if the client is seeking tax related advice to rely on in order to meet their tax obligations, they should seek advice from a registered tax agent or Australian legal practitioner. Ultimately, your clients need to be aware that you are simply the transmitter of data to the ATO and not the provider of a tax agent service.

Purchaser payment notification

A conveyancer can complete and submit the Purchaser payment notification application on behalf of clients for a fee without being registered with the TPB as a tax agent or an Australian legal practitioner because the TPB is of the view that the form no longer contains questions that involves the provision of tax agent services.

Summary of the requirements under the TASA and options available to conveyancers (that are not Australian legal practitioners)