New Capital Gains Tax compliance measures will affect all property purchases over $2 million
From 1 July 2016, when a foreign resident disposes of taxable Australian property (both directly and indirectly held), the purchaser will be required to withhold and pay 10% of the purchase price to the ATO. Failure to withhold may result in significant penalties for the purchaser. Australian resident vendors will be required to apply for a clearance certificate (thereby proving their resident status) to ensure funds are not withheld from sale proceeds. Consideration will need to be given to the timing of compliance obligations so as not to cause settlement delays.
Why have the changes been introduced?
Foreign residents are currently subject to CGT on capital gains made from the disposal of Australian assets however, compliance with this requirement is extremely poor. The Bill introduces amendments to Australia’s tax laws to improve the operation of the CGT regime and includes a new collection mechanism for foreign resident CGT liabilities.
The new withholding requirements
The new legislation imposes a 10% non-final withholding obligation on the purchaser of certain taxable Australian assets when they believe the vendor is a foreign resident. Purchasers will be required to pay 10% of the purchase price to the ATO which may be withheld from the settlement payment they make to the vendor.
What types of Australian assets are affected?
The withholding tax is limited to these types of taxable Australian assets:
- real property situated in Australia – land, buildings, residential and commercial property;
- mining, quarrying or prospecting rights if the assets are situated in Australia;
- interests in Australian entities that predominantly hold the above assets (indirect interests).
Excluded from this obligation is residential property valued at less than $2 million, arrangements conducted on the stock exchange, and arrangements which are already under an existing withholding arrangement.
Impact on transactions
Australian resident vendors will be required to apply for clearance certificates to ensure that funds are not withheld from sale proceeds. Vendors can apply for a clearance certificate at any time, even before a property is listed for sale, and they are valid for 12 months.
Purchasers must withhold 10% of the purchase price if they have knowledge (or a reasonable belief) that the vendor is a foreign resident, or if they have not been provided with a Clearance Certificate by the settlement date. The required amount must be paid to the ATO on or before the day the purchaser becomes the owner of the property. Where an amount has been withheld, the purchaser must lodge a Purchaser Payment Notification form with the ATO to provide details of the transaction.
If you would like further information on the impact of this amendment on your personal or business interests, please contact Terry Brauer.
General Advice Disclaimer
Akambo Private Wealth trading as Accountants Private Advice AFSL 322056 General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.