Foreign resident capital gains tax withholding regime

bigstock_home_purchase_2427613-300x200Buying a property from a foreign resident? Then, please read below.

The withholding applies to:

  • real property in Australia (including land, buildings, residential and commercial property)
  • the grant of a lease over real property in Australia, where a premium is paid for the grant of the lease
  • mining, quarrying or prospecting rights
  • interests in Australian entities whose majority assets consist of any of the above property or interests (ie an indirect Australian real property interest), and
  • options to acquire any of the above property or interests.

The 10% withholding does not apply where:

  • the vendor provides the purchaser with the appropriate clearance certificate or declaration
  • the property is valued at less than $2m
  • the transaction is conducted through a stock exchange or crossing system
  • the arrangement is already subject to an existing withholding obligation
  • the arrangement is a securities lending arrangement, or
  • the transaction involves vendors who are subject to formal insolvency or bankruptcy proceedings.

Tax planning opportunities

Your foreign resident clients with Australian assets may consider bringing forward any contemplated transactions before these measure are enforced from 1 July 2016. Provided that the contract of sale is entered into before 1 July 2016 the withholding measures will not apply, even if settlement occurs after 1 July 2016.

Client communications

If you are aware of any clients that are thinking of purchasing real property (or any of the above interests in real property) then you should send them a letter or email to let them know about the new law. Similarly, if you have clients that are not Australian residents for tax purposes, you should also let them know about the new law, so that they can begin the process of obtaining a clearance certificate if that is appropriate. Sample letters are provided in Practice Tools.

Implementation process

The ATO has announced that the following online forms will be made available at www.ato.gov.au/FRCGW before 30 June 2016:

  • Clearance certificate application for Australian residents
  • Variation application for foreign residents and other parties
  • Purchaser payment notification.

Where a taxpayer is unable to access the webpage they can call 132 866 within Australia or +61 2 6216 1111 if they are outside Australia to obtain details of the information they will need to provide.