Recent changes to the tax legislation will require a
purchaser to withhold and pay 10% of the purchase price to the ATO
in certain circumstances. The new withholding regime will apply to
a wide range of transactions relating to real estate, shares in
companies and units in unit trusts.
The rules are designed to collect tax from foreign residents
that make gains from selling taxable Australian property. However,
the obligation on purchasers to withhold has a far broader
How will the withholding provisions operate?
Purchasers of Australian real estate will be required to
the market value of the real estate interest being sold is less
than $2 million; or
the seller obtains a clearance certificate from the ATO.
There are other exemptions, but these are narrow. Generally,
anyone purchasing real estate valued at more than $2 million will
have to ensure that the seller provides a valid clearance
certificate before settlement.
Purchasers of shares in a company or units in a unit trust will
be required to withhold unless:
the purchase is via an approved stock exchange; or
the shares or units are not 'indirect real property
the purchaser reasonably believes that the seller is an
Australian resident for income tax purposes;
the seller provides the purchaser with a declaration stating
that they are either not foreign residents or that the shares or
units are not indirect property interests.
As with purchases of real estate, there are narrow
Importantly, in the case of shares in a company or units in a
unit trust, there is no $2 million threshold. Unless the seller
provides a declaration to the purchaser, the risk of having to pay
withholding tax of 10% to the ATO – in addition to the
purchase price – is with the purchaser.
Agreements will need to be prepared that manage this risk.
When does this start?
The new withholding provisions will apply to sale agreements
entered into on or after 1 July 2016.
However they will also apply to option arrangements entered into
before 1 July 2016 where the exercise date of the option is after 1
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The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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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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