A new capital gains withholding tax regime came into effect on 1 July 2016. Under the Tax and Superannuation Laws Amendment (2015 Measures No. 6) Act 2016, purchasers of certain Australian assets from a "foreign resident" will be required to withhold and remit 10% of the total consideration to the Australian Taxation Office (ATO).

For the regime to apply, the asset acquired must be a relevant asset, the vendor must be a "foreign resident", and the acquisition must not be an excluded transaction. Relevant assets are taxable Australian real property, an indirect Australian real property interest, and an option or right to acquire either, currently subject to Australian capital gains tax on disposal by non-resident owners. 

A vendor may apply for a clearance certificate exclusion but if it is unable to provide one, the purchaser must withhold 10% of the asset's cost base and pay this to the ATO. If the vendor is not entitled to a clearance certificate, but a 10% withholding is inappropriate, the vendor or purchaser can apply for a variation.

Where a withholding obligation exists, the purchaser must withhold the relevant amount, complete an online ATO form and pay the withheld amount on or before settlement. Failure to pay will render the purchaser liable for that amount and penalties may be imposed.

Written by Andrew Komesaroff and Carlos Gouveia.

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