Update: Withholding tax on property sales by foreigners

August 2015

Withholding tax for foreign asset sales

Draft legislation is now before Parliament to discuss the 10% non-final withholding tax that will apply to foreign residents. 

The Australian Treasury has released its draft legislation for the 10% non-final withholding tax that will apply to foreign residents for some property transactions. 

Originally announced in November 2013, the policy is seeking to tackle low levels of voluntary compliance with reporting capital gains from the disposal of Australian assets – a position that is almost impossible for the ATO to follow up. 

The new withholding tax will apply to the disposal by foreign residents of:
  • Taxable Australian real property;
  • An indirect Australian real property interest; or
  • An option or right to acquire such property or interest.
The purchaser in these transactions will be required to pay 10% of the purchase price to the ATO.

There are a few exclusions to the reforms to reduce the volume of transactions captured including:
  • Transactions involving residential property valued at less than $2.5 million
  • An arrangement that is conducted through a stock exchange
  • An arrangement that is already subject to an existing withholding obligation
Other exclusions apply to a vendor where the vendor has provided:
  • A declaration that they are an Australian resident for income tax purposes;
  • A declaration that they will be carrying on a business through a permanent establishment located in Australia immediately after the transaction;
  • Where, if the CGT asset acquired is a membership interest, the vendor has made a declaration that the interest is not an indirect Australian real property interest.
If you believe these changes affect your Australian property and investment interests, contact us on 02 9957 4033 for more information. 

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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