In brief - Sale of certain Australian assets by foreign
residents to be affected
The Tax and Superannuation Laws Amendment (2015
Measures No. 6) Bill 2015 is currently before the
Commonwealth Senate. If passed, the bill will impose on the
purchaser of certain Australian assets sold by foreign residents,
including real property transactions over $2 million, an obligation
to withhold payment of 10 per cent of the purchase price and pay
this amount to the Australian Taxation Office.
What real property transactions will attract the withholding
If passed the regime will apply to contracts entered into on or
after 1 July 2016 by which the purchaser acquires:
an asset that is a direct or indirect interest in taxable
Australian real property (including land, buildings, residential
and commercial property); or
an option or right to acquire such property or such an
This means that, as well as acquisitions of land, the
acquisition of a lease asset by a lessee and foreclosing creditors
may also be subject to the withholding payment.
Among other exemptions, the 10% withholding payment will not
apply to real property transactions if the value of the real
property is less than $2 million or if the vendor is in bankruptcy
or under external administration.
Who is a foreign resident? Definitions for individuals and
The withholding payment is payable where the vendor is a
relevant foreign resident. A foreign resident is a person other
than an Australian resident. An individual will generally be deemed
to be a resident if they are domiciled in Australia or are present
in Australia for at least 183 days of the income year. A company is
deemed a resident of Australia if:
it is incorporated in Australia;
it carries on a business in Australia and has either its
central management and control in Australia; or
its voting power is controlled by shareholders who are
How will the withholding payment work for Australian assets
sold by foreign residents?
The withholding payment obligation requires the purchaser to pay
10% of the first element of the cost base to the Commissioner of
Taxation. The first element of the cost base is usually the total
purchase price of the asset acquired. The purchaser must then
withhold this amount from the payment that they make to the vendor
and remit this amount to the ATO.
The payment is due on the day the purchaser becomes the owner of
the asset or interest acquired (i.e. settlement). This varies from
normal capital gains tax requirements, which are generally
backdated to the day the purchaser entered into the contract to
acquire the relevant asset or interest.
Obtaining a clearance certificate from the Commissioner of
Purchasers of real property above $2 million will need to
obtain, or ensure the vendor obtains, a clearance certificate from
the Commissioner of Taxation. If a clearance certificate is
obtained, the purchaser is entitled to rely on the clearance
certificate and will not be required to make the withholding
The ATO has advised that clearance certificates should be
provided within 1-14 days of making an online application.
Implications for buyers and sellers of property worth more than
If the purchaser fails to make the withholding payment when it
is payable, the existing administrative penalties under the Taxation Administration Act 1953 will
apply. As we creep closer to June, purchasers and vendors of real
property must consider the implications of the amendment bill when
considering drafting agreements in relation to land valued over $2
ATO has released 2 draft fact sheets relating to the 2010 amendments to corporate law and tax in relation to dividends.
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