- Six Things that Can Keep a Business from Growing
- Avoiding the Wealth Creation Con Artists
- Why Business Owners Should Think Like Futurists
- 4 reasons to consider refinancing your home loan
- Does your super fund provide enough life insurance cover?
- Succession plan basics for small business
- Matters to Consider Before Setting Up an SMSF
- Should you register for GST?
- Finance options for buying a car
- 7 Useful Web-Based Software Programs for SMEs
- ATO ANNUAL REPORT
- How The Cloud and Automation Make Business Management Easier
- Buying Property? Why You Should Care About Interest Rates
- Buying property through SMSF – what are the rules?
- Big data for small business
- HIFX - INTERNATIONAL PAYMENT EXPERTLY DONE
- Budget Alert – Should you put in place a Transition to Retirement strategy?
- FBT 2016 - WHAT YOU SHOULD KNOW
- How New Laws May Impact Your Use of an Earnout Right when Buying or Selling a Business.
- Transfer of Business Assets & Private Company Shares
- Financial Future Checklist
- 6 Things that Work Better in The Cloud
- Can better inventory management improve business performance for Manufacturers?
- 5 Top Causes Of Stress for Small Business Owners Open page Preview for 5 Top Causes Of Stress for Small Business Owners
- 5 Reasons for Cash Flow Problems in Small Businesses
- Key man insurance, who do you need to insure?
- Buying A Business? 5 Red Flags to Watch Out For
- Should You Take Your Small Business National?
- Upfront costs when buying a home and how you could save
- Insourcing vs outsourcing vs co-sourcing
- Saving Tax Through Successful Loan Structuring
- Buy/sell agreements - do you need one?
- Changes to overseas working holiday tax
- Employment and the 457 visa
- Exciting new service offering at YML!
- Right Corporate Structuring
- Stamp Duty
- Annual Wage Review
- Interest Only Loans
- Federal Budget 2014-15 Update
- YML Insight February 2015
- YML Insight March 2015
- YML Insight April 2015
- 2015 Federal Budget Report
- YML Insight June 2015
- YML Insight July 2015
- YML Insight August 2015
- POWER BI - BUSINESS DATA TOOL
- The Importance of Estate Planning
- Tax Time Checklist for Individuals
- Federal Budget May 2016 - Superannuation and Social Security
- SuperStream Deadline for Small Employers
- Land Tax Surcharge and You
- Tax Liabilities to be reported to Credit Agencies
- Business Process Improvement
- Business Valuation
- Prepaying Interest
- Superannuation Contributions at EOFY
- Financial Year End Planning
- How Business Process Outsourcing can bring value to your customers through technology
- Equity Crowd-Funding
- Mortgage Insurance
- 457 Visa
- Insurance in Super
- GENERAL SKILLED MIGRATION (GSM)
- Super Guarantee – What Happens When You Get It Wrong
- Business Process Outsourcing – Take the Technology View
- The Importance of Estate Planning
- PRINCIPAL-AND-INTEREST VS INTEREST-ONLY
- UPDATE YOUR WILL
- SAFE HARBOUR FOR DIRECTORS OF STRUGGLING COMPANIES
- PENDING 457 VISA CHANGES in MARCH 2018
- REMINDERS! LAND TAX REGISTRATION and DEED OF VARIATION
- UPDATING SMSF TRUST DEEDS
- SMSF - $1.6 MILLION TRANSFER BALANCE CAP
- CONTRACTOR vs. EMPLOYEE – EMPLOYER OBLIGATIONS
- RPA for VEHICLE FLEET MANAGEMENT
- TRUST DISTRIBUTION IN 2018
- TAX PLANNING
- THE IMPORTANCE OF WITHDRAWING YOUR MINIMUM PENSION
- AUDIT INSURANCE – ATO Increasing Audit Activity in the Areas of Income Tax and Supe
- What does the NEW 482 Visa mean for your business?
- GST on Property Transactions has changed from 1 July
- YML MIGRATION – WHAT CAN WE DO FOR YOU?
- INVESTMENT LOANS – IS IT WORTH TAKING OUT PRINCIPAL + INTEREST at 3.89% RATE*?
- GLOBAL TALENT SCHEME – Get the expertise your company needs…
- It’s started – Single Touch Payroll (STP)
- CAR LOAN – HERE’S AN OFFER
- Over 65? Downsize your home to contribute to your super!
- NEW Skilling Australians Fund (SAF) Levy
- Superannuation Guarantee Amnesty – Self-Correct your past Super Guarantee Liability
- Non-Residents and SMSFs – Tax Alert!
- Proposed Partner Visa Changes – NEW Two-Step Process
- Other Topics
- WORK RELATED CAR EXPENSES - WHAT'S LEGAL?
- WHAT IS THE BEST WAY TO PAY OFF YOUR DEBTS?
- Business Protection Insurance
- Aiming to Make a Final Non Concessional Superannuation Contribution for 2016? Be Careful!
- Getting Organized and Planning Effectively This EOFY
- New Withholding for Non Residents
- Four Per Cent Stamp Duty Surcharge for Overseas Investors Buying Residential Real Estate in NSW
- Co-Sourcing: An Alternative To Out-Sourcing
- What Small Business Expenses Can You Claim?
- Israeli Tax of Trusts
- New Superannuation Rules
- YML Group App - Coming Soon
- Obtaining a Business Skills Visa
- Quick Tips to Pay Off Your Mortgage Sooner
- FBT on Christmas Gifts and Tax Deductibility of Christmas Parties
- Changes to the Assets Test for Centrelink Aged Pensions from January 1st 2017
- Why You Should Consider Co-Sourcing for your Business
- Is It Worth Fixing Your Loan?
- Co- Sourcing
- Shareholder's Agreements
- FAMILY TRUST DEED VARIATION
- ENCOURAGING NEWS FOR Permanent residency (pr) APPLICANTS
- TSS has replaced 457 Visa Program – What is TSS?
- Introducing YML Migration
New Withholding for Non Residents
A new capital gains tax (CGT) withholding regime will apply from 1 July 2016.
The purpose of the regime is to facilitate the collection of CGT from non-residents and is one of a suite of tougher measures the Government has introduced to address perceived tax leakage in the cross-border context. Other recent developments include tax-related conditions for FIRB approval, the ‘BEPS’ international anti-avoidance initiatives (including the amendments to Part IVA of the Tax Act aimed at alleged multinational tax avoidance), mutual assistance in the collection of international tax debts, and the granting of more expansive information gathering powers to the ATO.
Under the new CGT withholding regime, liability is imposed on buyers to remit 10 per cent of the purchase price to the ATO at the time of settlement when buying certain direct and indirect interests (such as shares or options) in land and resource-related assets from non-residents. The purchaser is liable for a penalty of the amount of the withholding if the amount is not paid. If the purchaser is a company the directors can be personally liable.
To be prepared for the start of the new regime on 1 July 2016 and to avoid delays at settlement purchasers should give consideration to:
- any changes that need to be made to documentation; and
- the procedures and the time required to obtain a declaration or clearance certificate from vendors who are Australian residents or to make an application to the ATO for a variation of the amount payable.
YML can advise you with respect to both of these issues.
What assets does the withholding regime apply to?
Unless an exception applies, the measure will apply when parties enter into a contract on or after 1 July 2016 to sell, transfer or assign:
- a direct interest in Australian land (including a lease of Australian land); or
- certain rights relating to resources situated in Australia; or
- an indirect interest in Australian real property, which means a 10 per cent or more interest in an Australian entity that predominantly holds any of the above assets; or
- an option or right to acquire any of the above; and
at the time that the contract is entered into:
- the purchaser knows, or reasonably believes, that the vendor is a foreign resident; or
- the purchaser does not reasonably believe the vendor to be an Australian resident, and the vendor has an address outside of Australia or the purchaser is authorised to provide a related financial benefit to a place outside of Australia (whether to the vendor or to anyone else); or
- the asset is a relevant direct interest, resource related right or indirect interest that causes a ‘company title interest’.
This last point is significant because it may result in the regime applying even though the purchaser knows the vendor is an Australian resident, and will likely require Australian resident vendors selling these types of assets to seek a clearance certificate.
What must be withheld?
The amount to be remitted to the ATO is 10 per cent of the ‘first element of the CGT asset’s cost base’. In the usual case, the cost base will be equal to the purchase price of the buyer. However, it also includes the market value of any non-monetary consideration to be given to the vendor, any liabilities assumed by the purchaser and GST if the purchaser is not entitled to an input tax credit for GST paid. If the transaction is not on arms-length terms, the first element of the cost base is deemed to be the market value of the asset.
If the acquisition subject to withholding is the result of the exercise of an option, the amount to be paid is the exercise price less the option price. It remains unclear how the withholding rules will apply in the case that the vendor ceased to be an Australian resident after granting the option. It is expected that the ATO will issue guidance on this issue.
Exemption: transactions under $2 million
When the relevant asset is either a direct interest in land or indirect interest giving rise to a company title interest and is valued at less than $2 million, no withholding is required. However, if the interest is an option or right to acquire a direct interest in land or indirect interest giving rise to a company title interest valued at less than $2 million withholding will still be required on any option premium paid unless another exemption exists or a variation is sought and received from the ATO.
Exemption: clearance certificates
When the relevant asset is a direct interest in land or indirect interest giving rise to a company title interest the vendor may apply to the ATO for a clearance certificate to relieve the purchaser of their obligation to withhold and remit funds to the ATO.
The ATO says that it will have an online system to apply for clearance certificates and expects that straightforward clearance certificates will be provided “within days” of being submitted (14 to 28 days if there are “data irregularities or exceptions”). A clearance certificate remains valid for 12 months from the date of issue meaning that a certificate could be sought at the time a property is listed for sale.
Exemption: vendor declarations
Where the relevant asset is an indirect interest in land and not a company title interest, a vendor may make a declaration that it is an Australian resident for the relevant period. Provided that the purchaser does not know the declaration to be false, the purchaser is relieved from the obligation to withhold and remit funds to the ATO. A declaration remains valid for 6 months after it is made.
The following other exemptions are available from the withholding regime:
- transactions on an approved stock exchange or on a broker operated cross system;
- securities lending arrangements; and
- transactions in respect of external administration and bankruptcy.
Purchasers, vendors, and creditors of vendors may apply for a variation of the amount to be withheld and paid to the ATO. Circumstances in which a variation could be made include:
- if there are multiple vendors, only some of which are foreign residents;
- if it can be shown that no capital gain will be realised by the vendor, although the ATO may refuse to make a variation if the vendor has or expects to have other Australian tax liabilities; and
- on the application of a secured creditor, for example if the proceeds of sale of an asset subject to withholding are insufficient to cover both the amount payable to discharge the security and the amount payable to the ATO.
The ATO must have regard to the interests of creditors when exercising the variation power and the explanatory memorandum to the Bill states that “it is not the intention of these amendments to undermine the security of creditors in the event of a vendor’s default”.
The ATO has indicated that in “the majority of cases” the variation will be provided within 28 days.
The 10 per cent withholding tax must be paid to the ATO on or before the day of settlement. The ATO has indicated, however, that purchasers will be given a few days leniency in this respect so as to alleviate any issues at settlement.
The purchaser is liable for a penalty of the amount of the withholding if the amount is not paid. If the purchaser is a company the directors can be personally liable.
Other practical issues
Where an amount is withheld, the purchaser is required to complete an online ‘Purchaser Payment Notification’ form to provide to the ATO details of the vendor, purchaser and the asset being acquired. The purchaser will then automatically receive a payment reference number.
Parties considering transactions involving direct or indirect interests in land should consider how the proposed regime will impact their transaction.