The Australian Government has recently passed new legislation pertaining to the withholding tax on payments for the sale of taxable Australian property to foreign residents. This applies to sales of Australian property where contracts are entered into on or after 1 July 2016 and the property has a market value of $2 million or more. In these cases the purchaser is required to withhold 10% of the purchase price at settlement and pay that amount to the Australian Taxation Office (ATO), unless certain requirements are met.
This new regime imposes obligations on both the vendor and purchaser of taxable Australian property, so it is recommended that you discuss these if you are considering the sale of your property.
Taxable Australian Property
This withholding regime will apply to taxable Australian property, which is:
- real property located in Australia:
- land, buildings, residential and commercial property;
- lease premiums paid to obtain a grant of a lease over real property located in Australia; and
- mining, quarrying or prospecting rights;
- other property:
- interests in Australian entities for whom the majority of assets consist of the above properties or interests (‘indirect interest’); and
- options or rights to acquire the above properties or interests.
There are several types of assets that do not require withholding and when purchasing you should see us to ascertain whether the asset you are purchasing is subject to a withholding requirement.
Where the vendor is an Australian resident, they are able to avoid the purchaser withholding 10% where prior to settlement they provide to the purchaser:
- for the sale of Australian real property: a clearance certificate from the ATO; or
- for other assets: a vendor declaration that they are not a foreign resident.
The provision of a clearance certificate is how the ATO confirms that withholding tax is not required for the particular transaction.
Where the vendor does not provide the required document before settlement, the purchaser must pay the withheld amount to the Commissioner of Taxation.
However if unsure whether this exemption applies to you then you should seek legal advice regarding your withholding obligations. It may also be necessary to obtain an expert valuation.
Where there are multiple vendors each must obtain their own clearance certificate. A potential vendor can apply for one at anytime they are considering disposing of real property, even before the property is listed for sale.
If you are required to complete an ATO clearance certificate, click on this link to access the online forms.
Alternatively for transactions involving other assets the vendor must complete the declaration relevant to the particular sale.
Such declarations are valid for 6 months from the date signed by the vendor.
Where there are multiple vendors each must complete their own declaration.
Where a purchaser delays in paying the withheld amount to the Commissioner of Taxation, penalties will be imposed in the form of the General Interest Charge. Furthermore where a purchaser fails to withhold, the penalty is equal to the amount that was originally required to be withheld.
If this new tax is set to apply to you, or you would simply like more information regarding this new tax, please contact us at firstname.lastname@example.org or call (07) 3345 4388.