Written by Leisha de Aboitiz on April 1, 2016
Overview of the new CGT withholding regime
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).
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.
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.
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.
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).
If the vendor does not agree that a standard withholding amount of 10% is appropriate, it will need to either:
The online systems are still being finalised, however, the ATO has advised that:
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.
Sincere thanks to our wonderful clients and hard-working team for supporting our inclusion in the Legal 500 (Asia Pacific) Guide as a leading firm in Real Estate for 2023
The Legal 500 has been analysing law firm capabilities across the world for more than 3 decades in over 150 jurisdictions. Their research is based on: “feedback from 300,000 clients worldwide, submissions from law firms and interviews with leading private practice lawyers, and a team of researchers who have unrivalled experience in the legal market.” – https://www.legal500.com/about-us/
February 10, 2023
We are delighted that Massons has been selected as an “Excellence Awardee” in the category of “Boutique Firm of the Year” at the 2022 Australasian Law Awards.
Thank you to all of our wonderful clients who have supported our nomination in this category, and to our amazing lawyers and support staff for making this possible!
Wishing all the other Awardees the best of luck and looking forward to the Gala Dinner. A night out with our team is always cause for celebration – win, lose or draw!!
March 23, 2022
We are excited about our inclusion in Doyle’s Guide for 2022 for NSW in the following categories:
Massons – Leading Property & Real Estate Law Firms
Jodie Masson – Leading Property & Real Estate Lawyers and Leading Leasing Lawyers
Leisha de Aboitiz – Leading Property & Real Estate Lawyers and Leading Leasing Lawyers
Ben Malone – Property & Real Estate Law Rising Stars
Thank you to all of our peers and wonderful clients who have helped to achieve this recognition.
March 14, 2022
February 28, 2022
We are excited to announce the appointment of Alex Ho as a Senior Associate at Massons. Alex started with us as a paralegal and has achieved this milestone in record time due to his hard work, his ability to develop and sustain fantastic relationships with clients, his engagement in constantly seeking to improve himself and others in equal measure, and his absolutely infectious enthusiasm. We couldn’t be prouder! Congratulations Alex!
January 5, 2022
December 8, 2021