On 13 May 2013 the Federal government announced that it would introduce a 10% withholding tax on payments made to foreign residents who dispose of certain taxable Australian property. This broadly means that when a foreign resident disposes of certain types of Australian property that is taxable, the purchaser will have to withhold 10% of the purchase price and pay that amount to the Australian Taxation Office (ATO).
The government introduced the Bill for this measure and it has been passed meaning that this new withholding regime applies to contracts drawn up on or after 1 July 2016.
Assets that will be affected by this withholding tax include:
- Property in Australia such as land, buildings, residential and commercial property
- Lease premiums paid for the grand of a lease of a property in Australia
- Mining, quarry or prospecting rights
- Interests in Australian entities whose majority assets consist of the above such property or interests (this is called indirect interest)
- Options or rights to acquire the above property or interest.
Some exclusions do apply, such as if the property transaction falls under $2 million or transactions listed on an approved stock exchange.
Where there is an obligation under this new bill, the purchaser much withhold the relevant amount of money at settlement and pay it to the ATO at the earliest possible time. Penalties may apply if this is not followed up in due time.