Foreign Resident CGT Withholding Regime – Exposure Draft

Friday 10 July 2015

Treasury has released for consultation exposure draft legislation to implement a 10 per cent non-final withholding tax on the disposal of certain taxable Australian property by foreign residents.

Currently foreign residents are subject to pay capital gains tax (CGT) on any capital gains made from the disposal of:

  • Direct or indirect interests in taxable Australian real property (TARP)
  • Rights and options in respect of these assets, and
  • Certain other business related assets.

Foreign residents are required to meet these obligations by submitting a tax return to the Australian Tax Office (ATO). However, in many cases, voluntary compliance does not occur.

In order to encourage voluntary compliance, under the new proposals:

  • an acquirer who has reason to believe the vendor is a foreign resident will be required to pay 10 per cent of the purchase proceeds to the ATO
  • the acquirer is able to withhold this amount from the purchase price paid to the vendor as a non-final withholding tax
  • the foreign resident is then able to lodge a tax return and finalise their year-end tax position at year end.

The provisions will not apply to:

  • Transactions involving residential property valued less than $2.5 million; or
  • An arrangement conducted through an approved stock exchange

An acquirer may have ‘reason to believe’ the vendor is a foreign resident where they are aware the vendor has an overseas address, or bank account. Where the acquirer has no reason to believe the vendor is a foreign resident, they have no obligation to pay an amount to the ATO. The acquirer can seek a declaration from the vendor indicating the vendor’s Australian residency to further confirm they have no obligation.

Note that the proposed law extends to all legal structures including trusts. Therefore, trustees of self- managed super funds who are acquiring these types of assets will be captured by the proposed law.

Submissions are open until 7 August 2015.

Further information

Treasury, Foreign Resident Capital Gains Withholding Tax, 8 July 2015

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