A new tax regime for withholding tax – what you need to know
07 Jun 2016
After 1 July 2016, all persons deemed foreign residents under tax regulation will be charged a 10% tax on the sale of properties valued at over $2million. Given the regulatory regime behind this tax, this will impact a large number of property transactions in Australia, and importantly, imposes an obligation on the buyer to make sure the tax is collected.
The provisions of this tax regime are set out in Subdivision 14-D into Schedule 1 of the Taxation Administration Act 1953.
The withholding tax will apply where a person becomes the owner an asset valued over 2 million that they have acquired from a foreign resident following a transaction or series of transactions.
The asset being referred must be a ‘CGT Asset’, which is either:
- Taxable Australian Real Property (includes vacant land; any building, leasing or prospecting rights); or
- An indirect Australian real property interest (where more than 50% of the value of an interest is attributable to Australian real property and the vendor has held 10% or more of that interest); or
- An option or right to acquire such property or such an interest.
As a result, the buyer in such a transaction is required to withhold 10% of the gross purchase price and remit it to the ATO on or before the date of completion. The buyer must register as a withholder and notify the ATO of the amount withheld. There are penalties if the buyer does not comply with this.
This will also affect sellers, who will receive 10% less from their sale unless they hold a clearance certificate stating that they are not a foreign resident. Therefore any Seller who is selling an asset valued over 2 million, whether an Australian resident or not, must apply for a clearance certificate from the ATO. The purpose of this certificate is to provide confirmation that the withholding tax should not be withheld from the transaction. The certificate needs to be provided to the purchaser on or before the date of completion.
If a sale only indirectly relates to Australian real property (for example, through the sale of shares in a company), then a seller must simply provide a declaration that they are not a foreign resident for the purposes of withholding tax.
At Snedden Hall Gallop Lawyers, we are able to assist you to navigate this process if you are either a seller or buyer and can help you to understand the provisions of this taxation regime which may apply to your transaction. Contact our conveyancing team today.