Non-Resident CGT Withholding Rules…. REBOOTED!

Are you buying or selling property? If so, you need to be aware of the newly adjusted withholding rules, which are now set to impact a much wider range of property sales.

Background
Last year Federal Parliament passed legislation designed to collect gapital gains tax (CGT) from non-residents selling certain Australian property from 1 July 2016.
Although the law is targeted at foreign Sellers, given the way the legislation was drafted, all Sellers of property (resident or non-resident) may be impacted. The new law required that for all property sales of $2 million or more, the Buyer was required to withhold 10% of the sale proceeds and remit that amount to the ATO without delay – unless the Seller obtains a Clearance Certificate from the ATO before settlement.
The legislation doesn’t just apply to individuals but also Companies, Trusts, and Superfunds. Further to this, it is the Buyer that can then be penalised by the ATO for failing to withhold and remit the withholding tax.

What’s Changed?
In the May 2017 Federal Budget, the Government made the following two changes:
  • Increasing the CGT withholding rate for non-residents from 10% to 12.5% from 1 July 2017, and
  • Reducing the real property exemption threshold from $2 million to $750,000 from 1 July 2017.
These changes mean that many more txpayers will be impacted by the new regime. Given this, we now examine the law in detail.

Conditions
The new withholding regime applies to contracts entered into on or after 1 July 2016 where the following three conditions are met:

1. THE BUYER ACQUIRES CERTAIN ‘TAXABLE AUSTRALIAN PROPERTY’
This includes
  • Real property in Australia – land, buildings, residentail and commercial property
  • Lease premiums paid for the grant of a lease over real property in Australia
  • Mining, quarrying or prospecting rights
  • Interests in Australian entities whose majority of assets consist of the above such property or interests (e.g. shares in a company or units in a trust) or
  • Options or rights to acquire the above property or interest.

2. THE SELLER IS A NON-RESIDENT OR HASN’T PROVIDED A CLEARANCE CERTIFICATE FROM THE ATO
Note that where there are multiple Sellers in the one tansaction, this condition will be met where any of the Sellers is a non-resident.
This condition is the ‘kicker’. The rules can catch Australian resident Sellers if they do NOT obtain a Clearance Certificate from the ATO.

3. NONE OF THE FOLLOWING EXCLUDED TRANSACTIONS ARE THE SUBJECT OF THE SALE
(a) Real property transactions with a market value of less than $750,000 (downd from $2 million). As well as sales of real property, this exemption………..

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