By Lucy Williams -
Snapshot
- Recent legislative changes require solicitors to consider additional factors when acting on transactions involving real property.
- The primary changes involve: foreign resident capital gains withholding payment; stamp duty surcharge and land tax surcharge; land tax assessment; and swimming pool compliance certificates.
- To avoid clients incurring unwarranted liabilities, solicitors should ensure that their clients are aware of, and comply with, the new legislative requirements.
Changes concerning foreign residents
Foreign resident capital gains withholding payment
New withholding requirements for purchasers of certain property in Australia commenced on 1 July 2016. The Federal Government withholding tax is brought in by the Tax and Superannuation Laws Amendment (2015 Measures No. 6) Act 2016 (Cth). It amends schedule 1 to the Taxation Administration Act 1953 (Cth).
The reasoning behind the legislation is to capture some of the tax payable on capital gains by foreign residents. That tax has historically been difficult to recover after the funds from a sale of property go off shore.
A purchaser of a relevant CGT asset is required to withhold 10 per cent (or another amount specified) of the purchase price of the asset and remit that amount to the Australian Taxation Office (B). Failure to do so renders the purchaser liable to penalties and interest.
A CGT asset for the purpose of withholding is defined as taxable Australian real property or an indirect Australian real property interest.
There are exclusions for real property or a company title interest with a market value of less than $2 million. There are also defined exclusions concerning indirect Australian real property interests, such as approved stock exchange transactions.
All vendors disposing of real property/company title interests are considered foreign residents unless they obtain a clearance certificate (even if they are actually Australian residents for other income tax purposes).
For indirect Australian real property interests, a purchaser must determine whether or not a vendor is a foreign resident based on:
- whether they have received a relevant declaration which they do not know to be false; or
- if they know, or have reasonable grounds to believe, the vendor is a foreign resident.
- If all prerequisites are satisfied then the purchaser must remit to the ATO 10 per cent of the ‘first element of the property’s cost base’ (the purchase price in most cases) to the purchaser. A request may be made to the ATO to withhold less than 10 per cent of the first element of the cost base by: the purchaser; the vendor (or grantor of an unexercised option); or an entity owed a debt by the vendor.
