Australian entities involved in the sale and purchase of
relevant assets should consider how the new withholding regime will
apply to future transactions.
In February 2016 the Australian Government introduced a 10%
non-final withholding tax when foreign tax residents dispose of
certain taxable Australian property, and it applies to contracts
entered into on or after 1 July 2016.
Entities regularly involved in the sale and purchase of relevant
assets need to consider how the regime will apply to their future
transactions as purchasers and vendors.
The new rules aim to assist in the collection of tax from
foreign residents and make sure they meet their
tax obligations in Australia. The purchaser is required to
withhold 10% of the purchase price, report and pay the amount to
the Australian Taxation Office (ATO) on or before settlement. If an
amount has been withheld, the vendor will be required to file an
annual Australian income tax return in order to recover the
According to the
ATO, the withholding applies to taxable Australian property,
real property in Australia –
land, buildings, residential and commercial property situated in
Australia, otherwise known as Taxable Australian Real Property
lease premiums paid for the grant of
a lease over real property in Australia
mining, quarrying or prospecting
interests in Australian entities
whose majority assets consist of the above such property or
interests (indirect interest)
options or rights to acquire the
above property or interest.
Certain transactions are excluded from the withholding
obligation, most notably real property transactions with a market
value of less than AUD $2m.
For transactions involving TARP, the purchaser has an obligation
to withhold unless the vendor obtains a clearance certificate from
the ATO confirming they are an Australian tax resident. For assets
other than TARP, an obligation to withhold arises if the purchaser
knows or reasonably believes the vendor to be a foreign resident,
however the purchaser may rely on a residency declaration from the
vendor confirming their residency.
Although the new rules are aimed at foreign residents, the
change can affect both residents and foreign residents. Australian
resident entities that sell such assets must also produce a
residency declaration, or apply for a clearance certificate from
the ATO to make sure amounts are not withheld from the sale
proceeds. However, until entities adapt to the new system, issues
may arise where no provision is made for withholding tax in the
contracts of sale, no clearance certificate is provided, and
ultimately no tax is withheld on settlement.
Along with individuals and entities involved in the purchase or
disposal of relevant taxable Australian property with a market
value of $2m or more, (either as purchasers or vendors) the regime
also impacts professionals such as real estate agents, conveyancers
and solicitors, who assist to facilitate the sale of relevant
assets. The standard practice for all conveyancing and the selling
process for other assets that are caught under the legislation are
also affected. For assets that are TARP, obtaining an ATO clearance
certificate should now be part of the settlement process.
The affected entities will need to prepare and adjust their
conveyancing and the selling processes, to deal with the potential
withholding tax including:
amending the standard sale contracts
to include residency declarations
the requirement to supply an ATO
clearance certificate, and
other provisions relevant to the new
It would also be prudent to include special conditions in the
sale contract in the event of any delays of such documents.
As the rules place the onus for withholding on the purchaser,
the requirement for residency declarations or the application for a
clearance certificate can result in administrative costs and delays
in the ability to settle transactions, if it is not managed from
Entities should consider how the legislation will affect the
sale of taxable Australian property, whether that is from an
isolated transaction or a regular business activity.
Talk to us
TMF Australia's experts monitor changes to all rules and
local regulations. We can provide assistance with the reporting and
payment of the withholding amount to the ATO, and the application
of the clearance certificate from the ATO as required.
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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