TAX TIP – No withholding required for specific acquisitions
The ATO has issued various legislative instruments varying the foreign resident CGT withholding amount to nil, which apply in the following situations:
- The acquisition of an asset by a deceased estate, beneficiary or surviving joint tenant following an individual’s death.
- The transferee acquires the asset under the Family Law Act 1975 or under a State law, Territory law or foreign law relating to breakdowns of relationships between spouses.
- The acquisition of an asset from an income tax exempt entity.
Refer to the ATO’s legislative instruments ‘PAYG Withholding variation for foreign resident capital gains withholding payments – deceased estates and legal personal representatives’, ‘PAYG Withholding variation for foreign resident capital gains withholding payments – marriage or relationship breakdowns’ and ‘PAYG Withholding variation for foreign resident capital gains withholding payments – income tax exempt entities’.
Importantly, the way the legislation is structured, an acquisition of TARP is effectively deemed to be from a foreign resident and subject to foreign resident CGT withholding (even if the seller is an Australian resident), unless the seller has obtained a clearance certificate from the ATO (as discussed on page 104) that says otherwise, or where another exclusion applies.
In contrast, with certain other assets (e.g., indirect Australian real property interests other than company title interests), a buyer is generally not required to withhold an amount at settlement where they receive a declaration by the vendor that they are an Australian resident (or that the interests are not indirect Australian real property interests), unless the buyer knows the declaration to be false. Refer to S.14-210(3) and S.14-225 of Schedule 1.