If your client purchases indirect Australian real property interests from a relevant foreign resident vendor, they need to withhold from the purchase price. This applies to contracts entered into from 1 July 2016.
Indirect Australian real property interests
Indirect Australian real property (IARP) interests are membership interests in an entity that, subject to exclusions, satisfies two tests:
Membership interests include shares and units in taxable Australian real property rich (over 50%) trusts or companies.
Transactions involving IARP interests are excluded if:
- on an approved stock exchange or crossing system
- the market value of company title interests is less than a specified value
- the vendor is in external administration.
Your clients must withhold on transactions involving IARP interests unless they decide that the vendor isn't a foreign resident. They may rely on the knowledge condition in determining this.
Alternatively, they can request a declaration from the vendor to confirm they are an Australian tax resident, or the membership interest isn't an IARP interest. There is no approved form, but your clients can use the Foreign resident capital gains withholding – vendor declaration(PDF 222.41KB) as a template.
Your clients should include declarations in sale agreements as contractual warranty clauses.
See also:Help your clients understand foreign resident capital gains withholding, as it applies to indirect Australian real property interests.