New rules will apply to vendors disposing of certain taxable Australian property under contracts entered into from 1 July 2016. A 10% non-final withholding will be applied to these transactions at settlement.
Australian resident vendors selling real property will need to obtain a clearance certificate from the ATO prior to settlement, to ensure they don’t incur the 10% non-final withholding.
This new withholding legislation assists the collection of foreign residents’ Australian tax liabilities. It imposes an obligation on purchasers to withhold 10% of the purchase price and pay it to ATO, where a vendor enters into a contract on or after 1 July 2016 and disposes of certain asset types (or receives a lease premium for the grant of a lease over Australian real property).
The foreign resident vendor must apply for a tax file number (TFN) (if they don’t have one) and lodge a tax return at the end of the financial year declaring their Australian assessable income, including any capital gain from the disposal of the asset. The vendor may claim a credit for any withholding amount paid to us in their tax return.
- Australian resident vendors can avoid the 10% withholding by providing one of the following to the purchaser prior to settlement
- for Australian real property, a clearance certificate obtained from the ATO
- for other asset types, a vendor declaration they are not a foreign resident.
- Foreign resident vendors may apply for a variation of the withholding rate or make a declaration that a membership interest is not an indirect Australian real property interest and therefore not subject to withholding.
- Purchasers must pay the amount withheld at settlement to the Commissioner of Taxation.