BUYERS OF PROPERTIES SOLD BY FOREIGN RESIDENTS TO PAY 10% WITHHOLDING PAYMENT TO ATO
As of July 1, 2016 buyers of properties worth $2 million of more, which are being sold by foreign residents will incur a 10% withholding payment to the Australian Taxation Office. It seems like an odd piece of legislation, asking Australian residents to pay more while foreign investors rake in the cash. However, the legislation is actually an attempt to recoup lost capital gains tax revenue from foreign residents who evade ever making the capital gains tax payment to the ATO. This system captures the 10% payment within the settlement process.
Under the new legislation the withholding payment does not need to be provided until settlement, and it is provided by the purchaser out of the purchase price, not in addition to the purchase price. 10% of the purchase price will be withheld at settlement by the purchaser and provided to the ATO. Where a foreign residents feels the 10% withholding payment is not appropriate, they can request a variation by submitting a ‘Variation application for foreign residents and other parties’ form to the ATO. According to the ATO the variation review process will take no more than 28 days.
If the vendor is an Australian resident (as defined for tax purposes), they will need to obtain a Clearance Certificate from the ATO to avoid 10% of the purchase price being withheld at settlement. They will need to follow the standard capital gains tax process applicable to Australian residents.
The legislation only applies to properties with a market value over $2 million where the contract is entered on or after July 1, 2016.