Step Three – Determine whether any exclusions apply
Where an exclusion to the withholding rules applies under S.14-215 of Schedule 1 (as discussed on page 103), a buyer should obtain sufficient evidence that the exclusion applies (and not simply rely on a seller’s representations).
Step Four – Determine buyer’s cost base of the property
The withholding amount is broadly calculated as 12.5% (previously 10%) of the first element of the property’s cost base (unless this amount is varied). In determining the cost base of the property, some important considerations to be taken into account include:
- GST – Where a buyer is GST-registered, the first element of the property’s cost base is reduced by any input tax credits to which they are entitled. Where the property has been acquired solely for a creditable purpose, the first element of its cost base is generally its GST exclusive purchase price. In contrast, where the buyer is not GST-registered (or has not acquired the property for a creditable purpose), the first element of its cost base is generally the GST inclusive purchase price.
- Settlement adjustments – Disbursements at settlement (e.g., council rates) do not modify the first element of the property’s cost base.
- Related party dealings – The ‘market value substitution rule’ may apply to determine the first element of a property’s cost base to be its market value at the time of acquisition, where a buyer and seller have not dealt with each other on arm’s length terms (including where parties collude on the allocation of values in a contract). Refer to S.112-20 and paragraphs 13 to 15 of LCR 2016/6.
- Multiple sellers – Where multiple sellers are disposing of TARP, and only some (but not all) of these sales are subject to withholding, the withholding amount is calculated based on the relevant seller’s proportionate interest in the property. Refer to the ATO’s legislative instrument ‘PAYG Withholding variation for foreign resident capital gains withholding payments – acquisitions from multiple entities’.