Update on foreign resident capital gains tax withholding regime

The new foreign resident capital gains tax (CGT) withholding regime, which imposes a 10 per cent non-final withholding tax on the acquisition of certain taxable Australian property, applies to contracts entered into on or after 1 July 2016.

The Australian Taxation Office (ATO) has released guidance on the new regime in the form of the following Law Companion Guidelines (LCGs):

LCG 2016/5: Foreign resident capital gains withholding regime: the Commissioner's variation power. This Guideline considers the Commissioner of Taxation's discretion to vary the amount to be withheld from a particular transaction. It describes some of the circumstances that the Commissioner considers would support a request to vary amounts to be withheld including where the vendor makes no capital gain or a lesser capital gain, or will not have an income tax liability.

LCG 2016/6: Foreign resident capital gains withholding regime: amount payable to the Commissioner. This Guideline explains how to work out the amount to be paid to the Commissioner. This extends to how the purchaser can determine the amount to withhold in circumstances where the value of the asset differs from the contract price, or the contract price relates to more than one asset.

LCG 2016/7: Foreign resident capital gains withholding regime: options. This Guideline explains how to work out the amount to be withheld and paid to the Commissioner when a purchaser becomes the owner of an option to acquire taxable Australian real property (TARP) or an indirect Australian real property interest, or TARP or an indirect Australian real property interest as a result of exercising an option.

The ATO has also released the following forms to support compliance with the new withholding regime:

  • Foreign resident capital gains withholding clearance certificate application and instructions: The foreign resident capital gains withholding clearance certificate application form is used by Australian resident vendors to seek certification from the ATO that no withholding is required from the sale of taxable Australian real property because the vendor is an Australian tax resident. A resident vendor will have to provide the purchaser with the ATO issued clearance certificate on or before the day of settlement of the sale of the asset to ensure no withholding occurs. This form is also available online.
  • Foreign resident capital gains withholding rate variation application and instructions: Vendors can use the foreign resident capital gains withholding variation application form to apply to the ATO for a reduction in the rate of withholding. The variation may reduce the withholding rate to nil. This form is also available online.
  • Foreign resident capital gains withholding purchaser payment notification form and instructions: Purchasers can use the purchaser payment notification form to notify of ATO of a transaction to which foreign resident capital gains withholding applies. The form requests the details of the purchasers and vendors involved, the asset and the amount that has been withheld. The purchaser payment notification form needs to be completed and lodged with the ATO on or before the day of settlement of the purchase of the asset. This form is also available online.

Legislative instrument, PAYG withholding variation for foreign resident capital gains withholding payments – acquisitions from multiple entities, registered on 30 June 2016, ensures that when the relevant asset is acquired from multiple entities, including both Australian and foreign residents, the amount to be withheld is reduced to reflect only the foreign resident entities’ entitlement to the proceeds.

For a consideration of the practical aspects of the new regime for both vendors and purchasers, refer to PwC TaxTalk – Insights, Foreign resident capital gains tax withholding regime.

Tax incentives for early stage investors

From 1 July 2016, an investor in a qualifying early stage innovation company (ESIC) may be eligible for tax incentives, including a non-refundable carry forward tax offset (equal to 20 per cent of the amount invested, subject to a cap) and a CGT concession. The ATO is seeking feedback on implementation of these new tax incentives, including feedback on how to implement the new incentives, the proposed content for the ESIC report, and technical and guidance issues that the ATO should address.

Voluntary Tax Transparency Code

The Board of Taxation has published a list of companies that have committed to adopt the Voluntary Tax Transparency Code. Companies wishing to be added to the register should contact the Board.