New foreign resident CGT withholding regime effective 1 July 2016

Published 31 Mar 2016
Rebecca Moufarrege

Changes to the tax legislation announced by the former government will require a purchaser to withhold and pay 10% of the purchase price to the Australian Taxation Office (“ATO”) in certain circumstances. The changes were implemented to collect tax from foreign residents that make gains from the sale of certain taxable Australian property.

The new withholding regime effective from 1 July 2016 will apply to a wide range of transactions involving the sale or acquisition of:

• real property in Australia – land, buildings, residential and commercial property;

• shares in a company or units in a trust that, directly or indirectly, holds Australian assets; or

• mining rights over Australian land.

In relation to Australian real estate, purchasers will be required to withhold 10% of the total purchase price unless:

• the market value of the real estate interest being sold is less than $2 million; or

• the vendor obtains a clearance certificate from the ATO.

There are other limited exemptions however anyone purchasing real estate in Australia valued at more than $2 million needs to ensure that the vendor provides a valid clearance certificate from the ATO before settlement. It is understood that the ATO clearance certificates, confirming the vendor’s status as an Australian resident for tax purposes, will be automated and be available online with certificates issued within days on being submitted in straightforward cases.

The new withholding regime will apply to sale agreements entered into on or after 1 July 2016. They will also apply to option agreements entered into before 1 July 2016 where the exercise date of the option is after 1 July 2016.

It is important to understand that the purchaser will be liable for any shortfall if they do not withhold and remit the correct amount to the ATO. Penalties and interest may also apply.

Any agreement to sell or acquire real estate valued at more than $2million should consider the new withholding regime to ensure the management of any risk.

Contact Maclarens Lawyers for all your purchase and conveyancing needs.