Skip to content 
From 1 July 2016, purchasers who acquire ”indirect interests” in Australian land from a foreign resident may be required to withhold an amount equivalent to 10% of the purchase price and remit it to the Australian Taxation Office (ATO). This mandate is required under the new foreign resident capital gains tax withholding regime (CGT Regime). Under the CGT Regime, taxable Australian real property (TARP) will be considered a relevant taxable Australian asset. TARP includes real property (including leasehold interests) and mining, quarry or prospecting rights. Indirect Australian real property interests and any options or rights to acquire TARP or indirect Australian real property interests will also be considered relevant taxable Australian assets. An interest in an entity will be an “indirect Australian real property interest” if it meets specific tests defined in the CGT Regime, which include the concept that it is the total interest held by the seller which is important, rather than the total interest being disposed of. The CGT Regime also defines what comprises a foreign resident, and what transactions are excluded.
If the withholding obligation applies, the purchaser is required to withhold and remit defined amounts to the ATO. If the purchaser fails to pay the withholding amount to the ATO, the ATO will take action against the purchaser and the purchaser may be required to pay a general interest charge, as well as a penalty equivalent to the withholding amount; thus, penalties can be severe if the requirements of the CGT Regime are not met precisely.
The new laws are technical and may create uncertainty for buyers and sellers in property M&A transactions as to whether a CGT withholding obligation applies. Consult with your Ally Law member firm to fully investigate these issues as part of pre-sale due diligence and negotiations, and assure they are addressed in the contract or other documentation for the deal. Ally Law member firms have attorneys and tax professionals experienced in the intricacies of tax law, real estate law, and government regulation to assist you in your transactions around the globe. For more information about Ally Law member firm services in this area, contact us at team@ally-law.com.
Click here for the original article by Rohan Harris of Ally Law member Russell Kennedy Pty Ltd.
