New withholding obligations for Australian real estate
The new Foreign Resident Capital Gains Withholding (FRCGW) regime commenced on 1 July 2016 and imposes withholding obligations on purchasers of certain assets which are classified as Taxable Australian Property (TAP). TAP includes direct interests in land, leases and mining rights and indirect interests in Australian real property such as shares in certain companies that own TAP. The FRCGW regime is aimed at improving the collection of tax liabilities from foreign residents when they have disposed of Australian assets. It is important to note that these rules place the responsibility of withholding and payment of the tax on the purchaser.
In relation to real property transfers for more than $2 million, a purchaser is required to remit 10% of the purchase price to the ATO. Importantly, the rules assume that all vendors are foreign residents unless a clearance certificate or vendor declaration has been provided to the purchaser.
If you are involved in a real estate transaction in excess of the $2 million threshold, Roberts & Morrow can assist in advising on your withholding obligations (for purchasers) or obtaining the necessary clearance certificate or declaration (for vendors).
UPDATE: From 1 July 2017 the FRCGW regime was changed in two ways. Firstly the property threshold was reduced from $2 million to $750,000. Secondly the withholding tax rate increased from 10% to 12.5%.