The Commissioner has made a determination to modify the time at which the vendor is entitled to a tax credit in respect of an amount withheld under the foreign resident CGT withholding rules.
The modification, applicable in respect of transactions entered into on or after 1 July 2016, ensures that, where a settlement period for a transaction that is subject to Subdiv 14-D covers more than one income year for the vendor, the credit entitlement will be available in the same year as that in which the transaction giving rise to the payment to the ATO is recognised for tax purposes for the vendor.
In February 2017 Ms Nguyen entered into a contract for the sale of her Australian residential investment property for AUD$3m.
Ms Nguyen was not able to obtain a clearance certificate (as she is not an Australian tax resident) or a variation to the withholding tax.
The contract settled in August 2017. At that time the purchaser paid AUD$300,000 in withholding tax to the Commissioner.
Before 31 October 2017 Ms Nguyen lodged her 2016–2017 Australian tax return thereby complying with her tax obligations. She included the capital gain from the sale of the property and any income generated from the property during the 2016–2017 income year.
Without the modification to the crediting provisions, the tax credit for the withholding tax is available in the year in which the withholding tax is paid by the purchaser. This means that Ms Nguyen could not claim the credit in her 2016–2017 tax return in which she is required to include the capital gain. She would have to wait until she lodges her 2017–2018 Australian tax return to claim the credit.