What type of transactions are affected?

Transactions that involve the sale or acquisition of:

  • shares in a company or units in a trust that, directly or indirectly, holds Australian assets
  • real property in Australia (including leasehold)
  • mining rights over Australian land.

For transactions caught by the new rules, the purchaser will be required to pay 10% of the purchase price to the Australian Tax Office (ATO) at or before settlement.

When do the changes take effect?

The changes apply to acquisitions which occur on or after 1 July 2016.

Acquisitions made under a contract entered into before 1 July 2016 (but not completed until on or after 1 July) should not generally be caught, but this is an area where particular care will need to be taken to ensure that the relevant “acquisition” (for tax purposes) occurs before 1 July 2016.

Acquisitions made under a contract entered into on or after 1 July 2016 will be subject to the new rules.

What should clients contemplating the sale or acquisition of shares or units do?

The 10% withholding tax will not apply in certain situations, including where:

  • a vendor provides a qualifying declaration that it is an Australian tax resident;
  • a vendor provides a qualifying declaration that the shares or units are not “indirect Australian real property interests”;
  • the transaction is on an approved stock exchange; or
  • a variation is sought from the ATO to reduce the withholding tax rate.

Vendors may also seek a gross-up.

What should clients contemplating transactions involving Australian real property or mining interest do?

The 10% withholding tax will not apply in certain situations, including where:

  • the ATO issues a certificate that the vendor is not a foreign resident;
  • the transaction’s value is under the de-minimis threshold of AUD 2 million; or
  • a variation is sought from the ATO to reduce the withholding tax rate.

More information

Given the commencement date of 1 July 2016, the new 10% withholding regime is potentially relevant to transactions that are currently being negotiated