1. Why are these new laws being introduced?
The new laws are intended to assist in the collection of foreign resident CGT liabilities in relation to both direct and indirect Australian real property interests. Historically voluntary compliance has been very low, and enforcement procedures have been costly and difficult to undertake. The new laws (quite cleverly) push responsibility for implementation and enforcement onto purchasers, making purchasers responsible for withholding the non-final CGT amount from the purchase price (ie 10%) and paying it directly to the Australian Taxation Office (ATO). This will force foreign resident vendors to comply with their CGT liabilities, and will prompt them to either take preventative steps to reduce or avoid the 10% withholding tax before it occurs, or to seek an adjustment or credit when they lodge their income tax return (eg similar to pay as you go withholding from salary and wages in Australia).
2. How does it work?
The purchaser of a relevant CGT asset must withhold 10% of the market value of the asset from the purchase price and pay that amount to the ATO on or before the day that the asset is acquired (ie the day of settlement), unless the purchaser is in receipt of a clearance certificate, a notice of variation, or a vendor declaration.
What types of transactions will be affected?
The new regime will apply to:
(a) direct transactions relating to taxable Australian real property (eg land, buildings, lease premiums, mining, quarrying and prospecting rights), including options or rights to acquire taxable real property interests; and
(b) indirect transactions relating to interests in Australian entities where the majority assets of the relevant entity consist of the kinds of real property interests identified in part (a) above.
3. What types of transactions are excluded from the regime?
Some examples of acquisitions not caught by the new regime are:
(a) real property transactions where the “market value”[i] is below AUD 2 million;
(b) transactions listed on an approved stock exchange; and
(c) acquisitions where the foreign resident vendor is under external administration or in bankruptcy.
4. What happens if the purchaser doesn’t withhold the tax?
If a purchaser fails to withhold the correct amount and pay it to the ATO on completion, then the penalty payable by the purchaser will be equivalent to the amount that it should have withheld had it acted appropriately (eg 10% of the purchase price).
5. What does the vendor need to do?
If the vendor does not agree that a standard withholding amount of 10% is appropriate, it will need to either:
- obtain a clearance certificate (eg for Australian resident vendors);获得官方声明（比如，卖家是澳大利亚自主居民就不用交税）
- give a declaration to the purchaser in accordance with the statutory requirements. However, vendors should be aware that there are significant penalties for giving false declarations; or给买家法定要求的声明，然而卖家应当注意，错误的声明面临严重的惩罚
- obtain a notice of variation seeking a lesser withholding rate.获得寻求变更税率的通知
6. What kind of processes will be put in place and how long will things take?
The online systems are still being finalised, however, the ATO has advised that:
- certificates and notices will be available via a simple online system, accessible via the ATO website;证明和通知将可以通过登陆ATO官网，通过简单的在线系统申请获得；
- clearance certificates should be available within a matter of days, will be valid for 12 months and can be requested well in advance of a specific transaction; and免税证明应该在一定的时间段内发送，有效期12个月。卖方如果满足免税条件，可以在房产交易前几天向政府提出申请；
- a notice of variation will be a much longer process (eg at least a month).税收变更的过程会更长（如至少需要一个月的时间）。
Some practical examples…
|Foreign resident action
|Purchaser’s withholding obligation
|Sale of real property with market value of AUD 1.1 million
|No action required
|Nil. The market value is less than AUD 2 million, so it is an excluded transaction (see part 4 above)
|Sale of real property with market value of AUD 2.5 million
|No notice of variation or declaration provided to purchaser
|Purchaser must withhold and remit to ATO full 10% (ie AUD 250,000)
|Notice of variation obtained and provided to purchaser prior to completion (eg showing variation from 10% to 6%)
|Purchaser can rely on the notice of variation and will withhold and remit to the ATO the varied amount (ie AUD 150,000)
|Appropriate vendor declaration provided to the purchaser prior to completion
|Purchaser can rely on the declaration if it does not believe the declaration to be false. Purchaser can adjust the amount withheld on completion having regard to the declaration
For further information please contact Leisha de Aboitiz.
Disclaimer: This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought having regard to any particular facts or circumstances.