From 1 July 2016, a person spending $2 million or more on real property or who acquires interests in a company or trust that owns real property will need to confirm the residency status of the vendor.
The Tax and Superannuation Laws Amendment (2015 Measures No. 6) Act 2016 came into force on 25 February 2016.
This Act includes provisions relating to a new withholding tax regime on payments for certain Australian based assets sold by non-residents.
From 1 July 2016, a “CGT withholding tax” equal to 10% of the purchase price of an asset will be payable if a person acquires:
- real property;
- mining, quarrying or prospecting rights;
- 10% or more of the interests in an Australian entity where the majority of the assets of the entity are real property or mining, quarrying or prospecting rights; or
- an option to acquire such interests
from a non-resident unless one of the exceptions applies.
The process for confirming the residency status of the vendor is prescribed in the legislation and must be followed carefully.
The major exception to these rules is for purchases of real property valued at less than $2 million.
If a purchaser does not withhold the amount and remit it to the ATO, the purchaser may be subject to a penalty equal to the amount that should have been withheld.
It is particularly important to keep these changes in mind when a person is acquiring interests in a company or trust that owns real property (as no transfer of land is prepared, the purchaser’s obligations to withhold payment may be overlooked).
It also is important to keep in mind the state duties that may be payable on acquiring interests in landholders.