Foreign resident capital gains withholding payments - from 1 July 2016
From 1 July 2016 a purchaser of taxable Australian property from a foreign resident will be required to withhold and remit 10% of the purchase price and pay that amount to the Australian Taxation Office ('ATO'). A "foreign resident" is generally a person (or entity) that is not an Australian resident for tax purposes. There are exclusions to the requirement to withhold 10%, including where taxable Australian property has a market value under $2 million.
Taxable property includes (among other things) real property (land/residential & commercial property/buildings) and lease premiums paid for the grant of a lease. For example purchasers of a leasehold interest at the Victorian ski fields, will be required to withhold 10% of the purchase price of that leasehold interest to pay to the ATO if the market value is over $2 million.
A certificate called a "clearance certificate" will confirm to a purchaser that the 10% is not required to be withheld (application forms to be available from the ATO online). If a Vendor does not provide a clearance certificate prior to settlement, then the purchaser will have to withhold the 10%. If the purchaser fails to do this, then the purchaser will be penalised and is required to pay a sum equivalent to 10% of the purchase price to the ATO.
The Tax and Superannuation Laws Amendment (2015 Measures No. 6) Bill 2015 that introduced this withholding regime was passed and received Royal Assent on 25 February 2016. Thank-you to my colleague Julie Maxfield for bringing this to my attention.
The contents of this publication is for reference purposes only. This blog post does not constitute legal advice and should not be relied upon. If you require legal advice please contact Aitken Partners on (03) 8600 6056.