The Federal Government has recently passed the Tax and
Superannuation Laws Amendment (2015 Measures No. 6) Act 2016.
This legislation imposes a 10% non-final withholding payment on
the disposal by foreign residents of certain 'Taxable
Australian Real Property.' The obligation to make this payment
will rest with buyers.
In very broad terms, buyers of relevant real estate assets will
be required to enquire as to whether sellers are 'Foreign
Persons' and whether the property being purchased is
'Taxable Australian Real Property.' If the answer to both
of these questions is yes, then the buyer will be required to
withhold from the funds payable to the seller, and remit to the
Australian Taxation Office, 10% of the purchase price. The ATO will
then credit the amount against any resultant CGT liability of the
Effectively, the regime will be a collection mechanism to
support the operation of the foreign resident CGT provisions.
What transactions will be affected?
There will be an obligation for the buyer to withhold an amount
equal to 10% of the proceeds from the transaction and pay this
amount to the ATO where the following apply:
The seller is a 'Foreign Resident' for Australian
income tax purposes.
The transaction involves an asset that is 'Taxable
Australian Real Property', an 'Indirect Australian Real
Property Interest' or an option to acquire either of
'Taxable Australian Real Property' is real property
situated in Australia (including a lease of land situated in
Australia), and certain mining rights. An 'Indirect Australian
Real Property Interest' will apply in relation to certain
shareholdings in companies whose principal assets are Australian
Are there exemptions?
The obligations for the buyer with withhold and remit the 10%
payment will not apply in any of the following circumstances:
The market value of the Taxable Australian Real Property is
less than $2 million.
The transaction is conducted on an approved stock
Certain other narrow exemptions in the legislation apply.
What can buyers do to protect themselves?
Failing to withhold the required payment from the purchase price
will result in the buyer being required to pay to the ATO the
required sum from its own funds. Therefore, it is essential that
buyers in affected transactions ensure that they have sufficiently
verified the status of the property being purchased, and the status
of the seller as a Foreign Person.
The legislation provides the following mechanisms to assist
The seller may obtain from the ATO a clearance certificate
indicating that the seller is not a foreign resident during a
specified period that covers the transaction, and provide the
clearance certificate to the buyer.
The seller may provide to the buyer a declaration that the
seller is an Australian Resident during a specified period that
covers the transaction.
A buyer in receipt of such a clearance certificate or a
declaration will not be required to withhold the 10%.
The new regime will apply from 1 July 2016. However, it will
also apply to option arrangements entered into before that date,
where the exercise date is after 1 July.
It is important that both buyers and sellers seek legal advice
before entering in to an affected transaction, so that their
obligations and risk are appropriately managed.
Special consideration will need to be given to transactions
involving highly geared assets, where the consideration payable
(after taking out the 10% withholding tax) is insufficient to
discharge the mortgage or other encumbrance over the asset.
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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