CGT and GST obligations often arise when taxpayers dispose of real property situated in Australia. In particular, foreign resident taxpayers are generally subject to CGT when selling Australian real property and GST often applies when taxpayers sell new residential premises or land in the course of carrying on an enterprise.
The ATO has held significant concerns over the years over the failure of many of these taxpayers in meeting their obligations under the CGT and GST rules. To address these concerns, new rules were introduced in Schedule 1 to the Taxation Administration Act 1953 (‘Schedule 1’) to assist in the upfront collection of tax by imposing an obligation on anyone acquiring property from such taxpayers to withhold an amount from the purchase price (and to pay this to the ATO).
The withholding rules (discussed in detail later in the notes) are contained in:
- Subdivision 14-D of Schedule 1 (which contains the foreign resident CGT withholding rules); and
- Subdivision 14-E of Schedule 1 (which contains the GST withholding rules applying to taxable supplies of new residential premises and potential residential land).
All legislative references are to the ITAA 1997, unless otherwise indicated.
The foreign resident CGT withholding rules
Under Australia’s foreign resident CGT regime (contained in Division 855), a foreign resident generally disregards a capital gain or capital loss unless the applicable CGT event happens in respect of a CGT asset that is taxable Australian property. Refer to S.855-10.
‘Taxable Australian property’ is defined in S.855-15 to include ‘taxable Australian real property’. Taxable Australian real property (‘TARP’) is defined in S.855-20 as:
- real property situated in Australia (including a lease of land, if the land is situated in Australia); or
- a mining, quarrying or prospecting right (to the extent that the right is not real property), if the minerals, petroleum or quarry materials are situated in Australia.