The other change will apply a 10% non-final withholding tax to the disposal by foreign residents of certain taxable Australian property.
In such cases, the purchaser will be required to withhold and remit 10% of the proceeds from the sale.
Although to be implemented in the context of CGT, it will apply equally where the disposal of the Australian real property asset by the foreign resident is likely to produce gains on revenue account – and so be taxable as ordinary income rather than as a capital gain.
This measure will not apply to residential property transactions under $2.5m or to disposals by Australian residents.
The Government will consult publicly on the design and implementation of the regime to minimise compliance costs. This will include exploring options to provide certainty about:
- when obligations arise;
- pre-payment of tax liabilities by the seller;
- removing the withholding obligation where it can be shown that no gain will arise; and
- streamlining any payments required, including through the use of intermediaries.
A more detailed discussion paper outlining the proposed design of the withholding regime will be released by the end of 2013.
The Assistant Treasurer’s press release states that a number of countries with similar CGT regimes to Australia (such as the US and Canada) have a withholding mechanism to overcome difficulties in collecting tax on gains from foreign residents who may have little connection to the Australian tax system and who can transfer proceeds offshore before compliance action can be instigated.
Date of effect – The new withholding system for the disposal by foreign residents of certain taxable Australian property will apply from 1 July 2016.
Source: Budget Paper No 2 [p 35]; Assistant Treasurer’s press release, 14 May 2013
[WTB 20, 14/5/13]