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New withholding tax measure to apply to $2 million-plus property transactions

New withholding tax measure to apply to $2 million-plus property transactions

By LIV Media

Advocacy Legislation 

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On 1 July 2016, a new tax measure will be introduced that, despite its name, will affect all Australian tax residents involved in property transactions, as well as their lawyers and others assisting them in those transactions.

Foreign resident capital gains withholding is a 10 per cent non-final withholding tax on payments made to foreign residents that dispose of certain taxable Australian property.

It will affect the majority of real property transactions over $2 million, as well as a broad range of indirect real property transactions (such as the sale of shares in a company with a majority of real property assets).

Despite its name, the measure will affect all Australian tax residents because, in the case of real property and certain indirect real property interests, the measure in effect presumes all vendors to be foreign residents – unless they are able to prove otherwise.

The measure requires the purchaser of certain Australian assets to withhold from relevant foreign resident vendors an amount (generally equivalent to 10 per cent of the purchase price or otherwise as varied by the Commissioner of Taxation) and pay the amount to the Commissioner on or before the purchaser becomes the owner of the relevant asset.

The LIV, with the Law Council of Australia and Law Society of NSW, has raised serious concerns regarding the impact the measure will have on legal practice, the wider business community and consumers, particularly given the limited time period between Royal Assent and commencement. The concerns are summarised in a recent submission.

The initiative is likely to generate uncertainty, delays and a significant administrative burden for Australians who purchase Australian property from foreign entities, and Australians who purchase real estate with a market value of $2 million or more, LIV president Steven Sapountsis pointed out.

It will also place a significant burden on lawyers who advise on property transactions, he added. “It is vital that Australian legal practitioners become familiar with the measure to ensure they are able to properly advise clients regarding their legal obligations.”

The LIV is preparing a Practitioner Guide to assist LIV members to better understand how the measure will impact on their daily practice. This Guide will shortly be provided to all LIV members. The LIV is also holding a one-day CPD forum on 10 June.

For more information please contact the LIV’s dedicated email address FRCGW@liv.asn.au.

Further information from the ATO regarding the measure is available at www.ato.gov.au/FRCGW.

For further information regarding this media release please contact the
LIV Media Department

T: 03 9607 9373
E: media@liv.asn.au


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