Non-Resident CGT Withholding Tax on Property

Non-Resident CGT Withholding Tax on Property


13/07/2015 – Canberra released last week their exposure draft legislation that Treasury has put forward with a view to implementing a 10% non-final withholding tax if a non-resident disposes of certain taxable Australian property.

Under the current legislation foreign residents are required to pay Capital Gains Tax (CGT) on any gains if they dispose of the current asset types:

  • Direct or indirect interests in taxable Australian real property
  • Rights and options in respect to these assets, and
  • Certain other business related assets

When a non-resident sells one of the above asset types they are required to submit a tax return to the Australian Taxation Office (ATO) however it appears that not everyone does and this is what Canberra is looking to act.

Under the new proposal that Treasury has put forward they are going to try and ensure 100% compliance by all non-residents be implementing the following process:

  • An acquirer who has reason to believe that the seller is a non-resident will be required to pay 10% of the purchase proceeds to the ATO
  • The acquirer is able to withhold this amount from the purchase price paid by the purchaser as a non-final withholding tax
  • The non-resident is then required to lodge a tax return to take into account the non-final withholding tax as well as any of other capital gains that may be owing.

The draft legislation outlines that the proposed draft will not apply to the following:

  • Transaction involving residential property valued less than $2.5 million; or
  • An arrangement conducted through an approved stock exchange

If the purchaser suspects that the seller is a foreign resident then they may seek a declaration from the seller indicating that they are Australian residents for tax purposes.

Our take on the draft is that there is no way for the purchaser to work out whether the seller who maybe a non-resident is making a capital gain which may in turn provide a 10% haircut on the sale price if they are selling the property at a loss and there will then be the delay in releasing the 10% back to the seller. There is however mention that the Commissioner has the power to vary the amount owing. Whether this means that the seller can apply to the ATO to have the withholding tax varied or not is unknown as the draft is light on details.

Submissions for comment will remain open until the 7th of August 2015 and we will keep you posted on any further developments.

Brett Evans is the Managing Director and a Financial Planner with Atlas Wealth Management which is the first financial services firm in Australia to specialise in providing financial advice to Australian expatriates. With over 20 years of experience in the finance and investments industry, Brett has worked for blue chip companies which include the Australian Stock Exchange (ASX), HSBC, Suncorp and Citi Smith Barney.


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