An introduction of a 10 per cent non withholding tax on payments made to foreign residents that dispose of specific taxable Australian property will come into effect from 1 July 2016. The new legislation will impact on any property transaction where the purchase price is more than $2 million.
The legislation is aimed at vendors that are ‘foreign persons’ to ensure their capital gains tax liability is released. Any sale contract entered on or after 1 July 2016 will require the purchaser to withhold 10 per cent of the purchase price and pay that amount to the ATO. The vendor applies for a tax credit for the amount withheld by the ATO following settlement.
The purchaser must withhold 10 per cent of the purchase price unless the vendor shows the purchaser a clearance certificate from the ATO. The ATO will only issue a Clearance Certificate to Australian resident vendors.
Where the vendor is a ‘foreign person,’ the purchaser must withhold 10 per cent of the purchase price and pay that to the ATO unless the vendor provides a ‘Variation Notice’ in which case the purchaser must remit the amount stated in the notice. A ‘foreign person’ vendor can obtain a Variation Notice from the ATO.