Foreign Resident Capital Gains Withholding Payments– All Purchasers Beware

By Kevin Pai
From 1 July 2016, purchasers of Australian real “property” over $2 million may be required to withhold 10% of the purchase price and pay it to the Australian Taxation Office (ATO). The onus is on the purchaser to pay the 10% to the ATO if a clearance certificate is not provided by the vendor.
Excluded assets
There are some assets that are not subject to the withholding. These include:

  • taxable Australian real property with a market value of less than $2 million
  • an indirect Australian real property interest that provides a company title interest with a market value of less than $2 million
  • transactions conducted through an approved stock exchange or a crossing system
  • transactions subject to another withholding obligation
  • securities lending arrangements
  • transactions where the vendor is in external administration or transactions arising from the administration of a bankrupt estate, a composition or scheme of arrangement, a debt agreement, a personal insolvency agreement, or same or similar circumstances under a foreign law.

 

The key implications for transactions going forward for ‘Australian tax residents’
1. Only an Australian resident entity can obtain a clearance certificate.
2. A clearance certificate must be provided before settlement.
3. Issuing of a clearance certificate is free and will take between 14-28 days.
4. A clearance certificate is valid for 12 months from the date it issues, so the vender may ‘re-use’ the clearance certificate for multiple disposals within the 12 month period.
5. In a transaction of multiple assets, if the combined value exceeds $2 million, a clearance certificate will be needed.

 

The key implications for transactions going forward for ‘foreign tax residents’
1. ‘Foreign tax resident’ – residency status ‘for tax purposes’ is not the same as that used for immigration purposes.
2. A 10% non-final withholding will be incurred for transactions not excluded by definition.
3. The withholding is not final and the vendor may claim a credit depending on their Australian tax obligations.
4. If the 10% withholding amount impedes on the transaction, a variation can be applied to the ATO.
5. Whether the foreign resident is registered for GST may affect the amount of withholding required.
Information contained in this article has been gathered and summarised from the ATO website, for more information please see: https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Calculating-a-capital-gain-or-loss/Foreign-resident-capital-gains-withholding/

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Child Safety Window Devices

Following a recent spate of child deaths from falling out windows, the New South Wales Government has introduced a Bill to require certain owners corporations to install window safety devices to facilitate child safety.

The Strata Schemes Management Amendment (Child Window Safety Devices) Bill 2013 (“Bill”) was introduced to the New South Wales Parliament last week. The Bill:

(a) amends the Strata Schemes Management Act 1996 (“Act”); and

(b) introduces a new requirement for owners corporations to ensure that complying window safety devices are installed for windows in each building to which the requirement applies.

When Does The Requirement Apply?

The test is whether or not the strata scheme and its windows are schemes and windows to which the new section 64A of the Act (inserted by the Bill) applies. The Regulations under the Act (which will not be available until after the new section becomes operational) will specify the strata schemes and windows to which the new requirement applies. So at this stage it is not possible to say which schemes and which windows in those schemes will be affected by the new requirements. However, it is likely that if a scheme is caught by the legislation, not all windows will be caught (e.g. windows on the ground floor, or below a specified height, may not require the safety devices).

Installing The Devices

The new section 64A imposes a duty on an owners corporation whose scheme is caught by the new laws to carry out at its own expense work required to comply with the requirements. The work can be carried out on common property and within lots and this is work to which the owners corporation’s statutory access rights to lots applies (vide amendments to sec. 65 of the Act). The work involves the installation of the required devices and the devices must be in compliance with the regulations.

Failure to discharge this duty is an offence and carries a maximum monetary penalty calculated on 5 penalty units (i.e. $550.00). The duty can also be enforced by an adjudicator’s order if the owners corporation has failed to comply with it. An owners corporation is deemed to have failed to comply if it has not complied within 2 months of an application for such an adjudicator’s order. However, such an order cannot be sought until after the grace period allowed for owners corporations to comply with the new section 64A.

Time For Compliance

An owners corporation is not required to comply with the new section 64A until 13 March 2018. However, it may comply at any time after the amendments take effect.

Can owners install their own devices?

An owner of a lot in a strata scheme to which section 64A applies may install a complying window safety device on a window to which the section applies provided the window is in their lot. In doing so the owner must:

(a) repair any damage to the common property caused by the installation;

(b) ensure that the device is installed in a competent and proper manner;

(c) ensure that the device has an appearance, after installation, in keeping with the appearance of the building; and

(d) notify the owners corporation of the installation (this being an anticipated requirement of the regulations).

Failure of an owner to comply with (a), (b) or (c) above may result in an adjudicator’s order enforcing those obligations.

Practice Note

It is important that owners corporations comply with these new requirements within the time limit imposed by the Bill. However, from a risk management perspective an owners corporation to which the obligation applies would be well advised to comply as early as possible after the new laws take effect. Apart from the obvious protection this would afford children living in or visiting the building, it may also protect against any personal injury claim for damages based on foreseeability.

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