- The new foreign resident CGT withholding tax applies to sales contracts entered into on or after 1 July 2016.
- A purchaser who buys an Australian real estate asset from a foreign resident will be required to withhold and remit to the ATO 10 per cent of the purchase price.
- Solicitors who deal with property and unlisted interests in companies and trusts will need to adjust their conveyancing processes to deal with this withholding tax. A failure to do so could lead to a vendor losing 10 per cent of their sale price immediately to tax or alternatively a purchaser being saddled with a withholding tax obligation that should actually be borne by the vendor.
On 25 February 2016, the Tax and Superannuation Laws Amendment (2015 Measures No 6) Act 2016 enacted into law a new foreign resident CGT withholding tax (WHT). This WHT requires a purchaser who acquires an Australian real estate asset from a foreign resident vendor to withhold and remit to the Australian Taxation Office (ATO) 10 per cent of the purchase price.
Professionals who deal with property and unlisted interests in companies and unit trusts need to consider the impact of this WHT. Failure to understand the WHT’s reach could cause a vendor to lose 10 per cent of their sale price immediately to tax, or alternatively a purchaser to be saddled with this WHT obligation when economically it should be borne by the vendor.
Despite its name, the WHT covers more than Australian land and can apply to interests in ‘Australian land rich’ companies and trusts. Additionally, the WHT can affect Australian resident land vendors if they do not obtain an ATO clearance certificate by settlement.