Buyers must plan early to ensure they meet their CGT and GST withholding obligations
It is important that property buyers understand their obligations under the foreign resident CGT withholding rules (in Subdivision 14-D of Schedule 1) and the GST withholding rules (in Subdivision 14-E of Schedule 1), as penalties may apply for a failure to comply with these provisions.
TAX WARNING – Both sets of rules may apply to a single transaction
A single transaction may be subject to both sets of withholding rules, for example, where new residential premises located in Australia (with a market value of $750,000 or more) are acquired from a foreign resident. In this situation, the property buyer must ensure that they meet their obligations under both the foreign resident CGT withholding rules (in Subdivision 14-D of Schedule 1) as well as the GST withholding rules (in Subdivision 14-E of Schedule 1).
What are a buyer’s obligations under the foreign resident CGT withholding rules?
As a broad proposition, under the foreign resident CGT withholding rules, a buyer of taxable Australian property must first determine whether they are required to withhold an amount on the acquisition. If withholding applies to the acquisition, the buyer must:
- determine the amount to be withheld;
- notify the ATO of the buyer’s withholding obligation and pay the withholding amount; and
- withhold an amount at settlement.
Where the acquisition relates to TARP, the following steps must be undertaken.