Withholding payments
New rules will apply to sales of taxable Australian real property with a market value of $2 million or more from I July 2016.
A 10% non-final withholding tax will be incurred for all contracts entered into on or after 1 July 2016, unless a clearance certificate or variation certificate is obtained.
If you are selling real property with a market value of $2 million or more and are:
- an Australian resident vendor, you can avoid the 10% withholding by providing a clearance certificate to the purchaser prior to settlement
- a foreign resident vendor, you may apply for a variation of the withholding.
You may claim a credit for the withholding amount paid to the ATO against the final tax assessed in the vendor’s income tax return.
Purchasers must pay the amount withheld at settlement to the ATO.
Foreign resident capital gains withholding payments
A new withholding regime will apply to contracts entered into on or after 1 July 2016.
Broadly, where a foreign resident disposes of certain taxable Australian property, the purchaser will be required to withhold 10% of the purchase price*and pay that amount to the Australian Taxation Office (ATO).
* Note: the legislation specifies that the 10% withholding is actually on the “first element of the cost base”. However, as purchase price is understood by vendors and purchasers, and in many instances will equate with the “first element of the cost base”, we have used the term purchase price for simplicity.
While the withholding regime will protect the integrity of the foreign resident CGT regime, it also applies where the disposal of such taxable Australian property by a foreign resident generates gains on revenue account and, as a result, is taxable as ordinary income, rather than as a capital gain.
