Foreign Resident Withholding Tax Proposal – Are you a foreign resident selling Real Property in Australia – you need to read this
The former government announced on 14 May 2013 that it would introduce a 10% non-final withholding tax on payments made to foreign residents that dispose of certain taxable Australian property. The Bill for this measure, introduced by the current Government has been passed and received Royal Assent on 25 February 2016.
The 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.
NEW! ** Effective 1 July 2017, Any Conveyancing transaction in Adelaide, South Australia or any location in Australia generally with a Sale price of $750,000.00 or more is now captured by this requirement. This is a reduction in the threshold from $2 million and accordingly captures a vast higher quantity of transactions. A Vendor who is not a Foreign entity and who is an Australian Resident for Tax Purposes MUST provide a Vendors Clearance Certificate to their Real Estate Agent, Conveyancer or legal representative in order to clear them from having the Purchasers with hold funds at settlement.
The percentage of tax withheld for those transactions where a Clearance certificate is not provided has been increased to 12.5%( subject to passing of legislation). and the onuse remains with the purchaser to correctly remit the withholding amount directly to the Australian Taxation office at settlement.
Should a Vendor have an amount withheld from their property transaction they will need to lodge a Taxation return to the Australian Taxation office in order to recover and withholding if applicable. Such recovery is subject to the Vendor entities personal or corporate circumstances.
More Information: Foreign Resident Withholding Tax Proposal