On 25 February 2016 the Tax and Superannuation Laws Amendment (2015 Measures No. 6) Act 2016 (Cth) was enacted. This Act introduces a 10% non-final withholding tax on payments made to foreign residents under contracts entered into on or after 1 July 2016 to dispose of certain taxable Australian property (Assets).
The Assets affected are:
- real property in Australia (excluding real estate with a market value under $2 million);
- lease premiums for Australian leases;
- certain mining, quarrying and prospecting rights;
- interests in Australian entities whose majority assets consist of such property or interests (excluding transactions listed on an approved stock exchange); and
- options to acquire such property or interests.
The
obligation to withhold the tax rests with the purchaser, who must remit the tax
to the ATO prior to or at settlement without delay. The penalty a purchaser may incur for failing
to withhold tax is equivalent to the amount that was required to be withheld
and paid.
However,
purchasers are not required to withhold tax if the vendor provides the
purchaser a “clearance certificate” issued by the ATO or a declaration is
provided which proves the resident is not a foreign resident before settlement.
Where
the ATO determines a vendor is not entitled to a clearance certificate, the
vendor may apply to the ATO for a variation requesting the ATO determine a
withholding rate lower than 10%. The vendor must provide the notice of
variation to the purchaser prior to settlement.
For
further information please contact one of our property team members.
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