Question:
Purchasers to withhold tax on foreign real estate sellers
Answer:
Recent changes are outlined below:
July 1, 2022
- Loss carry back for eligible companies extended to cover 2023 income year.
- Professional firm profits diverted to the professional's spouse or other associates to be reviewed under new Tax Office guidance.
- Corporate collective investment vehicle legislative regime introduced.
- Temporary full expensing of depreciating assets extended to include 2023 income year.
- Depreciable assets of a company joining a tax consolidation group have tax costs setting rules modified for assets depreciated under temporary full expensing rules.
December 9, 2021
- Reduced Pandemic leave disaster payment of $750 per week made available through to 30 June 2022.
August 5, 2021
- COVID-19 Disaster Payments are non-assessable non-exempt income in 2021 income year and later. Payments phasing out as vaccination rates increase.
July 1, 2021
- New Investment Engagement Service launched for businesses planning significant new investments in Australia.
- Tax Office small business independent review service made permanent for businesses with turnover < $10m, for income tax, GST, exercise, luxury car tax, wine equalisation tax and fuel tax credits. Requested before amended assessment issued.
- Small business income tax offset for individuals increased to provide a reduction of 16% for a tax payable up to $1,000.
- Self-managed superannuation funds can now have six members, increased from four members previously.
July 1, 2021
- Some COVID -19 state and territory business grants received by small and medium enterprises are non-assessable, non-exempt income for 2021 and 2022 income years.
- Certain state, territory and local government financial support for individuals and businesses suffering COVID-19 impacts made exempt where businesses have turnover less than $50 million and only in eligible programs.
March 31, 2021
- JobKeeper payments scheme ended.
October 5, 2020
- Boosting apprenticeship commencements subsidy (up to 50% of apprentice's wages) is assessable income.
June 4, 2020
- Homebuilder grant for new home or substantial renovation construction is not subject to income tax.
April 1, 2020
- COVID-19 cash flow boost payments are not subject to income tax
The Government will change withholding tax legislation so that a purchaser must withhold 10% of the sale price of real estate, including on residential properties valued at $2.5 million or more and other assets associated with a place of business in Australia, when they are purchased from a non-resident.
This initiative was initially announced by the former Labor Government but in November 2013, the Liberal National Coalition said it would continue with the change.
It is to take effect from July 2016.
In October this year, the Government released a Discussion Paper giving more details of the change.
The withholding tax will be non-final, meaning that it will be applied against the eventual tax obligation the non-resident has for the sale of the asset. The withholding tax will apply where it is a property development on revenue account and also where it is on capital account such as property landlords realising their investment.
It will add complications to the sale process as the obligation to withhold is on the purchaser. The purchaser will need to determine if the seller is non-resident, presumably will need to register in some way for the withholding tax status and remit the funds to the Tax Office.
It is likely that standard real estate contracts will need to change and that there will be more work for the purchaser’s solicitor and accountant.
Foreign investors should be aware of this change, particularly given the large scale of foreign investment in upmarket properties.
WTB 2014/49/1600
Andrew and Tony Lovett
5 December 2014
