Property Law: Foreign resident CGT withholding regime for the sale of Australian property

For sale of Australian real property with a sale price of $2m and over contracts purchased from non-resident vendors entered into from 1 July 2016 a new 10% withholding tax has been introduced.  Resident vendors will therefore have to obtain a clearance certificate from the tax commissioner to escape the 10% withholding by the purchaser.

The new regime imposing withholding obligations on the purchasers of certain Australian assets. The purpose of the regime, in proposed is designed  to assist in the collection of the capital gains tax (CGT) liabilities of foreign residents.

A purchaser that acquires certain Australian assets from a vendor that is a relevant foreign resident must pay 10% of the purchase price to the Commissioner. The purchaser may withhold this amount from the vendor. The amount withheld will be 10% of the first element of the cost base of the asset (usually, the purchase price).

The obligation will apply to the acquisition of an asset that is:

• a direct or indirect interest in taxable Australian real property (TARP)
• an indirect Australian real property interest, or
• an option or right to acquire such property or such an interest.

The following situations will be exempted from the withholding obligations:

• transactions involving TARP and certain indirect Australian real property interests valued less than $2m
• a transaction conducted through a stock exchange or a broker-operated crossing system
• an arrangement already subject to an existing withholding obligation
• a securities lending arrangement, or
• transactions involving vendors who are subject to formal insolvency or bankruptcy proceedings.

Further, no obligation is imposed in certain situations where the vendor obtains a clearance certificate from the Commissioner or where the vendor has made a declaration about their residency status or the nature of the interest in their asset.

The amendments apply in relation to acquisitions made on or after 1 July 2016.

Contact our Property Lawyers for more information on the above. 

Andrew Graham - agraham@franklegal.com.au 

Andrew Frank - info@franklegal.com.au