Foreign Owned Property CGT Withholding Tax

On 25 February 2016, new legislation has been passed on CGT proposing to introduce a new withholding tax regime targeting foreign property owners commencing 1 July 2016.
The new regime requires the purchaser to pay a 10% non-final withholding tax to the ATO directly if the vendor is a foreign resident, unless the transaction is an excluded transaction.

Under the new regime, the purchaser will be put under an obligation to pay attention to the resident status of the vendor. Although purchasers are not required to make active requisition, they will need to make suitable CGT arrangement if:

1. They know that the vendor is a foreign resident;
2. They reasonably believe that the vendor is a foreign resident; and
3. They do not believe the vendor is a foreign resident, but the vendor has an address outside Australia, or any money is directed to paid overseas.

Following transactions are the main exclusions from the new regime:

1. If the vendor gives a residency or interests declaration;
2. If a clearance certificate is issued by the Commissioner;
3. If the property has a market value less than $2 million;
4. If the transaction is on an approved stock exchange; and
5. If the transaction is conducted using a crossing system.

It is suggested that the purchasers of property over $2 million should always enquire and require the vendor to provide a residency declaration in order to avoid non-compliance.