The requirement to withhold is on the purchaser, requiring them to have an understanding of whether the vendor is an Australian or foreign resident.
The legislation requires the WHT to be paid to the Commissioner on or before the day the purchaser becomes the asset’s owner. As a result, arrangements must be made prior to, or at settlement to ensure 10 per cent of the proceeds are remitted to the ATO.
What assets does it apply to?
The new rules go beyond property sales. Generally, the WHT applies to sales of the following types of assets:
- taxable Australian real property (TARP), e.g., vacant land, buildings, residential and commercial property, mining, quarrying and prospecting rights if the minerals, petroleum or quarry materials are situated in Australia, and leases over real property, where the market value is $2 million or more;
- indirect Australian real property interests with a market value of $2 million and more, and
- options or rights to acquire such property or interests.
There are some excluded transactions including those conducted through an approved stock exchange and securities lending transactions.
How does the purchaser know if the vendor is a foreign resident?
It is the responsibility of the purchaser to withhold an amount, if required under the legislation. This raises the question of how the purchaser will know if the vendor is a foreign resident. According to the rules, this requirement is satisfied if the purchaser:
- knows the vendor is a foreign resident (e.g., the vendor has informed the purchaser he or she is a foreign resident);
- has reasonable grounds to believe the vendor is a foreign resident; or
- has no reasonable grounds to believe the vendor is an Australian resident and either the vendor’s address is overseas or the payment is being made overseas.
Australian resident vendors are able to apply for a clearance certificate from the ATO. Where a clearance certificate is provided, the purchaser does not have any obligation to withhold.
Exceptions
There are two circumstances where there is no obligation to withhold. These are where:
- a clearance certificate is provided (as discussed above), or
- a vendor declaration that is provided. The vendor declaration can be either:
- a declaration the vendor is an Australian resident where the transaction involves indirect Australian real property interests and options and rights to acquire TARP or indirect Australian real property interests, or
- a declaration that the interests are not indirect Australian real property interests where the transaction involves an interest in a company or trust.
A purchaser can rely on a vendor declaration, unless they know the declaration is false.
Variation of amounts
Where withholding is required, a foreign resident vendor is able to apply to the ATO for a Notice of Variation, which will reduce the WHT rate below 10 per cent. A variation may be used where:
- the foreign resident will not make a capital gain on the transaction(e.g., they may make a capital loss);
- the foreign resident will not otherwise have an income tax liability (e.g., they have a carried forward capital loss which they will offset against the capital gain); or
- where there are multiple vendors, and one or more of the vendors is an Australian resident.
The varied rate will be advised by the ATO and will depend on the information provided in the application.
Receiving a credit for the WHT
This is a non-final WHT. The vendor will need to lodge an Australian income tax return and claim a credit for the WHT paid against their Australian tax payable.
If an Australian resident vendor has had WHT deducted from their proceeds - for example, because they did not provide a clearance certificate - the Australian resident vendor will be able to claim a credit for the WHT in their income tax return.
If you are the vendor…
- And you are an Australian resident, you need to complete the online ‘Clearance certificate application for Australian residents' form on the ATO website.
- And you are a foreign resident but believe a 10 per cent withholding should not be made, you need to complete the online ‘Variation application for foreign residents and other parties' form requesting a lesser withholding rate be determined by the ATO.
- And you are a foreign resident, consider whether a vendor declaration should be provided.
- And an amount has been withheld from your proceeds, you need to prepare and lodge an Australian income tax return.
If you are the purchaser…
- Complete an online ‘Purchaser Payment Notification’ form on the ATO website to provide details to the ATO of the vendor, purchaser and the asset being acquired.
- Withhold 10 per cent from the proceeds, unless a clearance certificate or vendor declaration has been received.
- If a Notice of Variation has been received, the purchaser needs to withhold at the varied rate.
- Pay the WHT to the ATO before or on settlement to avoid the general interest charge.
For more information please contact:
Philip MacIsaac
Director - Taxation
+61 3 9608 0157
pmacisaac@moorestephens.com.au