Foreign resident CGT withholding payments that purchasers are obliged to remit to the ATO

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Foreign resident CGT (Capital Gains Tax) rules have changed in respect of real estate transactions (and more). Not just sellers, but also buyers need to be aware of these changes and the obligations placed on each of them.

In summary for contracts of sale entered into by a foreign resident after 1 July 2016, in respect of a taxable asset, the buyer may be obliged to with-hold 10% of the sale price and remit it to the ATO (failing which the buyer will be liable for a penalty to the ATO essentially given by the value of the amount not remitted).

The changes have been made by the Tax and Superannuation Laws Amendment (2015 Measures No. 6) Act 2016.

Assets affected

According to the ATO, “this withholding is limited to taxable Australian property, being:

  • Real property in Australia – land, buildings, residential and commercial property;
  • Mining, quarrying or prospecting rights;
  • Interests in Australian entities that predominantly have such assets – this is called an indirect interest.” (Note, the $2M threshold mentioned below does not apply to not apply to this).

Exclusions

The ATO advises that the regime will not apply to the following:

  • Real property transactions valued under $2 million, ensuring that the vast majority of residential house sales will be unaffected by this measure;
  • Transactions on an approved stock exchange;
  • The foreign resident vendor is under external administration or in bankruptcy;
  • The vendor produces an ATO clearance certificate to the buyer prior to settlement.

Contract implications

While only applying to Contracts entered into after 1 July 2016, care should be taken in respect of Option agreements which may see the sale contract being formed after that date,

Matters to be addressed in contracts include:

  • A warranty from the seller about their residence status for Australian Tax purposes
  • Operative provisions around settlement obligations (on both parties) if the regime applies.

More resources

The ATO has a page, Foreign resident CGT withholding payments.

If you have more queries regarding Foreign resident CGT, contact us

Speak to a Business Development Officer today and make an appointment to speak with one of our Brisbane Property Lawyers. Call (07) 3252 0011.

This article was written by Andrew Lind (Director).