Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1051279157951

Date of advice: 6 September 2017

Ruling

Subject: Foreign resident capital gains withholding regime

Question 1

Does Subdivision 14-D of Schedule 1 to the Taxation Administration Act 1953 (TAA) apply to the contract of sale between Company A and Company B?

Answer

No

Question 2

Does Company B have an obligation to pay the withholding amount to the Commissioner of Taxation (the Commissioner) in accordance with subsection 14-200(1) of Schedule 1 to the TAA?

Answer

No

Question 3

Does Subdivision 14-D of Schedule 1 to the TAA apply to the contract of sale between Company B and Purchaser X?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 2018

The scheme commences on:

1 July 2017

Relevant facts and circumstances

The Property is owned by two Registered Proprietors.

The Registered Proprietors entered into a contract of sale dated early 2014 to sell the Property to Company A for the purchase price of over $2 million (Head Contract).

By contract of sale dated in early 2016, Company A agreed to sell the Property to Company B for the purchase price of over $2 million (Sub-Head Contract).

Company B is negotiating to sell the Property to Purchaser X for the purchase price of over $2 million plus GST (Proposed Contract). The Proposed Contract may be signed before or after 1 July 2017.

The Head Contract, the Sub-Head Contract and the Proposed Contract will settle on the same day.

An order was made in mid 2017 under Subsection 69(2) of the Foreign Acquisition and Takeover Act 1975 (Order) that Company A’s acquisition under the Head Contract was contrary to national interest and ordered to dispose of its interest in the Property by midnight 11 months from date the Order commences.

The Order demonstrates that Company A is a foreign purchaser.

Relevant legislative provisions

Subdivision 14-D of Schedule 1 to the Taxation Administration Act 1953

Reasons for decision

Subdivision 14-D of Schedule 1 to the TAA outlines the foreign resident capital gains withholding regime (the Regime).

The Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2015 Measures No. 6) Bill 2015 (the EM) provides that the effective date of the Regime is 1 July 2016.

From 1 July 2016, purchasers of certain Australian assets are obliged to withhold 10 per cent (or an amount varied to a lesser percentage under section 14-235 of Schedule 1 to the TAA) of the purchase price of the asset on settlement where they have purchased the property from a foreign resident, and to remit this amount to the Commissioner.

Treasury Laws Amendment (Foreign Resident Capital Gains Withholding Payments) Bill 2017 amends the TAA to modify the Regime to: increase the withholding rate from 10 per cent to 12.5 per cent; and reduce the withholding threshold from $2 million to $750,000. The measure will apply in relation to acquisitions of property that occur on or after 1 July 2017.

Subsection 14-200(1) of Schedule 1 to the TAA provides that the withholding obligation under that section arises unless an acquisition under a transaction under section 14-200(1)(a) is excluded under section 14-215.

Application to your circumstances

The contract between Company A and Company B was entered into before 1 July 2016. Moreover, the Order does not create a new contract date since they are not party to the contact of sale and have allowed 11 months for the disposal to occur.

Accordingly, Subdivision 14-D of Schedule 1 to the TAA does not apply; Company B does not have an obligation to pay the withholding amount to the Commissioner.

As Company B disposal contract will be entered into after 1 July 2016, Subdivision 14-D of Schedule 1 to the TAA will apply.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).