Foreign resident capital gains withholding: Budget update

Transcription

1 Foreign resident capital gains withholding: Budget update Australian Institute of Conveyancers National Conference Presented by Laurence Scarborough, CGT Risk Manager, Australian Taxation Office / 20 May 2017 UNCLASSIFIED Foreign resident capital gains withholding payments Budget update

2 The law as it currently applies Imposes a 10% non final withholding on the purchase price of taxable Australian real property Vacant land; any buildings; commercial premises; leaseholds Applies to all contracts entered into from 1 July 2016 Applies to disposal of taxable Australian real property with a market value of $2 million and above Every conveyancer received an ATO booklet 2

3 Key Definitions Market value if a purchase price negotiated between a purchaser and vendor is on an arm s length basis, then the purchase price may be used as a proxy for market value First element of the cost base remember this usually equates to the purchase price but this may not always be the case Foreign tax resident residency status for tax purposes is not the same as that used for immigration purposes, or for the Foreign Investment Review Board (FIRB) Does this only apply to foreign residents? No, this measure also applies to Australian tax residents! 3

4 Clearance certificate exclusion The withholding applies to all property sales with a market value of $2m or more! Unless the vendor has a clearance certificate The clearance certificate confirms that the withholding tax is not to be withheld from the transaction The clearance certificate is only available to Australian tax residents UNCLASSIFIED Foreign resident capital gains withholding payments Budget update 4

5 Clearance certificate Clearance certificate - apply online at Most instances: name, address, DOB and 3 questions Don t fax the form as you risk delays If not a legal practitioner or registered tax agent: get the vendor to provide a completed paper PDF version of the form you can then key it into the online form keep the PDF version on file 5

6 Budget 2017 Reduced the market value threshold to $750,000 1 July 2017 Withholding applies to disposal of taxable Australian real property with a market value of $750,000 or greater All these vendors will now need a clearance certificate Contracts entered into from 1 July 2017 onwards Existing contracts as at 1 July 2017 that settle on or after this date revert back to the $2 million threshold 6

7 Budget 2017 Increase the withholding rate to 12.5% 1 July 2017 Only applies if clearance certificate was not provided by the vendor Contracts entered into from 1 July 2017 onwards Existing contracts as at 1 July 2017 that settle on or after this date revert back to the 10% withholding rate 7

8 Budget 2017 Main residence exemption changes 9 May 2017 / 1 July 2019 Only relevant if you are doing a withholding variation for a foreign resident vendor From Budget night foreign and temporary tax residents will no longer be able to claim the main residence CGT exemption when they sell property in Australia Property held by foreign and temporary tax residents on Budget night can claim the exemption until 30 June

9 Budget 2017 Impacts of these changes for you The operation of the law hasn t changed BUT Large increase in number of transactions that you have to consider if a clearance certificate is needed Apply for a clearance certificate early the on-line form will be able to handle the increased number Standard contract changes to clauses needed More care needed with calculation of the withholding 12.5% rate 9

10 Budget 2017 Impact on application of Tax Agents Services Act Conveyancers who are not a legal practitioner or registered tax agent could not complete and charge a fee for doing the FRCGW forms BUT A regulation passed allowing conveyancers to lodge up until 31 Dec 2017 A process for conveyancers with respect to the clearance certificate and variation was agreed with the Tax Practitioner s Board: get the vendor to provide a completed paper PDF version of the form you can then key it into the online form keep the PDF version on file 10

11 Budget 2017 Impact on application of Tax Agents Services Act The ATO and TPB have agreed to changed wording for the purchase payment notification form (when withholding has to be paid) Clearance certificate and variation application: ATO has been in discussions with TPB about appropriate wording The ending of the regulation on 31 Dec 2017 has been raised with Treasury - by AIC National and ATO Treasury aware of the importance of this matter given increased numbers of vendors affected You still follow the process outlined 11

12 Improving the integrity of GST on property transactions: Budget update Australian Institute of Conveyancers National Conference UNCLASSIFIED Budget update

13 The proposed measure From 1 July 2018, purchasers of newly constructed residential properties or new subdivisions will be required to remit the GST directly to the ATO as a disbursement of funds at the time the property settles. Under the current law (where the GST is included in the purchase price and the developer remits the GST to the ATO), some developers are failing to remit the GST to the ATO despite having claimed GST credits on their construction costs. The delay or lag between the sale of property and the GST liability being reported increases the risk that developers will not lodge, will not remit, or will be unable to remit the GST payable on the sale. Incapacitated entities become incapacitated after settlement but before the GST liability is due. Bringing forward the collection of GST on some property development transactions removes the opportunity for non-compliance. It does not change the amount of GST payable or reported on the sale of taxable sales by property developers. Treasury will lead the consultation with industry This measure is not yet law UNCLASSIFIED - Budget update 13