TAX TIP – Foreign resident CGT withholding rules also apply to acquisitions of other types of taxable Australian property
In addition to TARP, the foreign resident CGT withholding rules also apply to acquisitions of the following types of assets (listed in S.14-200(1)(c) of Schedule 1):
- Indirect Australian real property interest, which broadly involves the acquisition of 10% of more of the shares in a company (or units in a unit trust) whose assets primarily consist of TARP.
- Options or rights to acquire TARP or an indirect Australian real property interest.
The focus of the notes is on the application of the withholding rules to acquisitions of TARP, and they do not discuss in detail how the rules apply to these other asset types. Further reference can be made to the ATO’s factsheet ‘Capital gains withholding: Impacts on foreign and Australian residents’ (QC 48972) for a detailed discussion of the rules.
When must a property buyer withhold an amount at settlement under the CGT withholding rules?
A property buyer is generally required to withhold an amount from the purchase price of TARP when all of the following conditions are satisfied in relation to the transaction:
- The buyer becomes the owner of TARP as a result of acquiring it from one or more
entities.
- The market value of the property is $750,000 or more (or $2 million for contracts entered into between 1 July 2016 and 30 June 2017). Where there is more than one buyer, the $750,000 (previously $2 million) threshold applies to the market value of the property as a whole (and not the market value of each buyer’s respective interest in the property).
- A clearance certificate, issued by the ATO, has not been received from the seller. Refer to page 104, where clearance certificates are discussed in more detail.
- The withholding amount has not been varied to nil by the ATO. Refer to page 105, where variations of withholding amounts are discussed in more detail.
Refer to S.14-200(1) and (4), S.14-210(1)(e)(i) and (2), and S.14-215(1)(a)(i) of Schedule 1.
Special withholding rules apply to the acquisition of assets under an earnout arrangement. Such arrangements do not generally apply to TARP and are not discussed in the notes.