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Beware 10% property withholding tax
FROM July 1 this year, a new 10 percent withholding tax will apply to acquisitions of Taxable Australian Real Property (TARP) or Indirect Australian Real Property (IARP) interests.
The withholding is based on 10 percent of the purchaser’s capital gains tax (CGT) cost base for TARP or IARP and must be paid to the Australian Taxation Office (ATO) on or before the settlement date.
“The ramifications for a purchaser in failing to withhold are severe so they will need to be thorough in their due diligence, be clear about their withholding obligations, negotiate withholding and settlement terms with the vendor and seek adequate protections in contractual agreements,” RSM Australia partner Simon Aitken said.
“The measures could have flow-on effects for related GST and stamp duty liabilities if there are tax gross-up clauses in the purchase agreement. A prudent course for a purchaser of TARP or IARP is to assume a withholding applies unless the vendor can prove otherwise.” 
Mr Aitken said Taxable Australian Real Property is defined as real property, including a lease, within Australia. The definition does not carve out residential property or a mining, quarrying or prospecting right within Australia.
“The new measures will impose a non-final withholding tax, meaning the vendor will still have an obligation to lodge a tax return in relation to the CGT event but they’ll be entitled to a tax credit and perhaps even a tax refund (where relevant) for the withholding,” he said.
“RSM Australia expects that the ATO will be vigilant in chasing delinquent vendors who do not lodge tax returns disclosing CGT events for their disposal of TARP or IARP.”
RSM Australia is an industry expert member of Victorian Leaders, the organisation helping to foster the next generation of leading businesses based in Victoria.
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