The Tax and Superannuation Laws Amendment (2015 Measures No.
6) Act 2016 (Act) was passed by Parliament
and received Royal Assent on 25 February 2016.
The Act introduced a new foreign resident capital gains tax
withholding (Withholding Tax) regime to all
contracts for sale of Australian property which is entered into on
or after 1 July 2016.
In summary, where the market value of the property is $2 million
or more, the Purchaser of certain taxable Australian assets from a
foreign resident is required to withhold and remit 10% of the total
consideration to the Commissioner of Taxation.
The Purchaser is obliged to comply with a Withholding Tax
(even if the Vendor is not a foreign resident)
unless the Vendor supplies a clearance certificate from the
Australian Taxation Office (ATO).
The Withholding Tax applies to the following
Real property in Australia with a market value of $2 million or
land, buildings, residential and commercial property;
Lease over real property in Australia;
Mining, quarrying or prospecting rights,
(Australian Real Property)
Other assets including:
Interests in Australian entities whose majority assets consist
of the above asset types; and
Options or rights to acquire any of the above asset types.
The Withholding Tax does not apply to:
Real property transactions with a market value under $2
Transactions listed on an approved stock exchange; and
The foreign resident Vendor who is under external
administration or in bankruptcy.
The Withholding Tax does not apply when the
Vendor disposes of either:
an Australian Real Property and provides the Purchaser with a
clearance certificate from the ATO; or
any other asset (other than Australian Real Property) where the
Purchaser is given a Vendor declaration:
as to the Vendor's Australian tax residency; and
confirming that interest being disposed of in an Australian
entity is not an indirect Australian Real Property interest.
The Purchaser can rely on the declarations unless they know the
declaration is false. Penalties apply where the Vendor has
knowingly, recklessly or failed to take reasonable care in making a
false or misleading declaration.
To provide certainty to the Purchasers regarding the withholding
obligations, Vendors of the Australian Real Property can apply and
obtain from the ATO a clearance certificate prior to settlement of
the transaction. If the Vendor fails to provide the certificate by
settlement, the Purchaser would be required to withhold 10% of the
purchase price and pay this to the ATO.
The Vendor may apply for a clearance certificate at any time
they are considering the disposal of real property. This can be
before the property is listed for sale. The clearance certificate
will be valid for 12 months and must be valid at the time the
certificate is given to the Purchaser prior to settlement.
The ATO is implementing an automated process for issuing a
clearance certificate. Vendors should complete an online clearance
certificate application form via the following link:
If there are data irregularities or exceptions, some manual
processing may be required and the clearance certificate will
normally be provided within 14 – 28 days (or longer for
higher risk and unusual cases).
How this works in practice
Where the Withholding Tax applies, the Purchaser is required to
complete an online 'Purchaser Payment Notification' form
with the ATO to provide details of the Vendor, the Purchaser and
the asset being acquired.
The Purchaser will then receive a payment reference number, and
a payment slip which includes a barcode for use if paying in person
at Australia Post. The Purchaser needs to pay the withholding tax
on or before settlement. The Purchaser can choose to pay the
withheld amount by electronic funds transfer, at a post office with
the barcode or they can mail a cheque to the ATO with the payment
reference number. General interest charge may apply to late
payments to the ATO.
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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