Foreign resident withholding tax

Background

Broadly, where a foreign resident disposes of certain taxable n property, the purchaser will be required to withhold 10% of the purchase price and pay that amount to the n Taxation Office (ATO).

The new withholding regime will apply to contracts entered into on or after 1 July 2016.

Who is a foreign resident?

The legislation will use the tax definition of resident, rather than that contained in Immigration legislation.

The definition, for tax purposes, of resident of is contained in subsection 6(1) of the ITAA 1936. A foreign resident is a person other than a resident (subsection 995-1(1) of the ITAA 1997.

Impact

This legislation will apply to:

  • n citizens and permanent visa holders who are treated as foreign residents for n tax purposes;

  • Temporary residents; and

  • Foreign nationals who are not treated as tax residents of

What assets are caught?

This withholding is limited to taxable n property with a market value of AUD 2million or more, being:

  • Real property in – land, buildings, residential and commercial property;

  • Lease premiums paid for the grant of a lease over real property in ;

  • Mining, quarrying or prospecting rights;

  • Interests in n entities whose majority assets consist of the above such property or interests – this is called an indirect interest;

  • Options or rights to acquire the above property or interest.

Exclusions

There are a number of exclusions. If the foreign resident vendor falls within one of these categories, then the 10% withholding is not applicable:

  • Real property transactions with a market value under AUD million;

  • Transactions listed on an approved stock exchange; or

  • The foreign resident vendor is under external administration or in bankruptcy.

Clearance certificates

For real property transactions with a market value of AUD2 million or above, the purchaser must withhold 10% of the purchase price unless the vendor shows the purchaser a clearance certificate from the ATO.

This certificate can be provided to the purchaser on or before the settlement of the transaction. Where a clearance certificate is provided, the purchaser is not required to withhold an amount from the purchase price.

If the vendor fails to provide the certificate by settlement, the purchaser would be required to withhold 10% of the purchase price and pay this to the ATO.

This means n resident vendors of real property with a market value of AUD2 million or above will need to apply for a clearance certificate and provide this to the purchaser before settlement to ensure no funds are withheld from the sale proceeds.

Obtaining a clearance certificate

The vendor may apply for a clearance certificate at any time they are considering the disposal of real property. This can be before the property is listed for sale.

The clearance certificate will be valid for 12 months and must be valid at the time the certificate is given to the purchaser prior to settlement.

https://www.ato.gov.au/Forms/Foreign-resident-capital-gains-withholding-clearance-certificate-application-instructions/

If the vendor is automatically assessed as an n resident, a clearance certificate will be issued electronically within days of the application being submitted. If there are data irregularities or exceptions, some manual processing may be required and the clearance certificate will be provided within 14–28 days.

Variation application

Where the vendor is not entitled to a clearance certificate, but believes a withholding of 10% is inappropriate, the vendor can apply for a variation.

https://www.ato.gov.au/Forms/Foreign-resident-capital-gains-withholding-rate-variation-application-instructions/

The notice of variation should be provided to the purchaser before settlement to ensure the reduced withholding rate applies.

Paying and reporting withholding amounts

Where a withholding obligation exists, the purchaser must withhold the relevant amount at settlement and pay it to the ATO without delay (general interest charge may apply to late payments). The penalty for failing to withhold is equal to the amount that was required to be withheld and paid. An administrative penalty may also be imposed.

Purchaser payment notification

Where an amount is withheld, the purchaser is required to complete an online ‘Purchaser Payment Notification’ form to provide details of the vendor, purchaser and the asset being acquired to the ATO.

https://www.ato.gov.au/Forms/Foreign-resident-capital-gains-withholding-purchaser-payment-notification-form-instructions/

The purchaser will then automatically receive a payment reference number, and a payment slip which includes a barcode for use if paying in person at Post. The purchaser needs to pay the withholding on or before settlement.

What this means for purchasers

Where a foreign resident disposes of n real property with a market value of $2 million or above, the purchaser will be required to withhold 10% of the purchase price and pay it to the ATO unless the seller provides the purchaser with a clearance certificate or a variation certificate.

If the purchaser acquires property from multiple vendors, the obligation to pay an amount may arise if any of the vendors is a relevant foreign resident.

What this means for sellers

n resident vendors who dispose of n real property with a market value of AUD2 million or above will need to apply for a clearance certificate from the ATO to ensure amounts are not withheld from their sale proceeds.

All transactions involving real property with a market value of AUD2 million or above will need the vendor and purchaser to consider if a clearance certificate is required

Who are LZR Partners?

LZR Partners is an accounting and business advisory firm that has been operating for 40 years. We can help you meet the challenges created by becoming internationally mobile and offer a variety of services to maximize the opportunities created.

We provide our corporate and individual clients with a commercial approach based on our extensive experience to optimize your global tax strategy, planning and compliance in your home country and international locations.

We have a passion to make your international opportunities more profitable, valuable and enjoyable.

Why LZR Partners?

Our principals have over 25 years of expertise in taxation and international human resources, and they specialize in advising individuals and organizations relocating to or from and operating within the global tax environment.

Rather than try to be all things to all men, we have developed a range of strategic relationships in the following areas that provide you with access to expertise cost effectively:

  • Visa and migration services

  • Legal

  • Employment law

  • US tax compliance including FBAR and FATCA reporting

  • Relocation services

  • Cost of living data

  • Health insurance providers

  • Foreign pension transfers including QROPS, IRA's, 401k and RRSP's

How we can help

You are the decision maker. Call us when you are ready.

We will arrange a personal meeting and we will ask the right questions to identify your needs. And we will deliver a solution. Our roots are in accounting, we know the rules, we are discreet, we thrive under pressure, and we know how to analyse the data so that we are in a position to give you advise how to take your international move to the next level.

Trust our experience. We have seen it all.

connect with us


AMANDA TINNER

amanda.tinner@visaexecutive.com

+61 (0) 409 969 525

LinkedIn

Berry Treffers

Berry.Treffers@hica.com.au

+61 (0) 434 485 331

LinkedIn

Michael van Schaik

MichaelV@lzr.com.au

+61 (0) 418 844 105

LinkedIn