New Australian Federal Government legislation will require 10%
of the value of transactions captured by the regime to be paid to
the Australian Taxation Office (ATO).
The new regime comes into effect on 1 July 2016 and will affect
a wide variety of sales for commercial industrial, rural and
residential land as well as sales of companies where the majority
of their assets are property, family law property settlements,
gifts made under a Will or internal family restructures.
Who is a foreign resident?
Every vendor is deemed a foreign
resident at first instance but there are two
For sales of land, if the value is under $2 million, the sale is
automatically exempt. Where the value is above $2 million the
vendor can apply to the ATO for a clearance confirming their
Australia residency, which will authorise the purchaser to pay all
proceeds to the vendor without deduction.
The ATO is implementing a free 'automated' online
process for issuing a clearance certificate whereby a vendor can
enter their details, the information is compared with ATO records
and in most cases, the clearance certificate will be issued within
3 to 4 days. These clearance certificates are valid for 12 months
and can be used for multiple transactions provided they remain
For other sales such as share sale agreements or option
contracts the vendor can make a declaration that they are not a
foreign resident or that the majority of the assets of the company
are not property related. In most circumstances, the purchaser can
rely on this declaration and pay the full amount to the vendor.
Declarations can only be relied upon for 6 months and may need to
be provided multiple times during a lengthy contract if a vendor
wants to ensure they receive the full amount of money under the
How much should be withheld?
The general rule is that 10% of the purchase price must be paid
to the ATO. The ATO can vary this amount depending on the
circumstances. Circumstances which may give rise to a variation
application include where only one vendor is foreign, the vendor
will make a loss on the sale, where the transaction is for non-cash
consideration or a mortgagee requires the full amount of settlement
monies to release the mortgage.
If a purchaser is provided with a variation notice, the
purchaser only has to pay the rate stated in the variation
The variation can be applied for on the ATO website and may take
up to 28 days to process depending on the transaction and
How is a payment made?
Before settlement the purchaser should go to the ATO website and
complete a 'purchaser payment notification' form. The
purchaser will then be issued with a payment slip, reference and
barcode. The payment can be made online or by sending a cheque in
What happens if the tax isn't withheld?
A purchaser who fails to pay the amount to the ATO can be liable
to pay an amount equal to that required to be paid in the first
instance, plus a penalty (which can also be equal to the amount
required to be paid), plus interest.
The regime imposes significant risks to both vendors and
purchasers but these can be managed by correctly identifying the
application of the regime to a transaction and taking the
appropriate steps. Parties to property or share transactions, gifts
or restructures should seek expert advice.
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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