Foreign prime property owners in Australia may have 10% tax taken on sale

The Australian tax office wants comments on a 2016 plan for buyers of some property worth more than AUS$2.5m sold by foreigners to withhold 10% for the tax office

Overseas owners selling prime property in Australia may have 10% taken out as part of the deal, under tax proposals being discussed.

Under the plan, from 1 July 1, 2016, a 10% non-final withholding tax will apply to sales of some real estate owned by foreigners and worth more than AUS$2.5million.

The measure would be a “collection mechanism” for the Australian Tax Office (ATO) as part of foreign resident capital gains tax and the ATO has now produced a discussion paper  and is asking for comments on the idea.

Under the scheme, the buyer will have to withhold 10% of the proceeds where the seller is a foreign resident and the asset is ‘taxable Australian property’.

The proposal was announced in the former Labor government’s 2013-14 budget and the present government says it intends to go-ahead with the plan.

The government says it supports overseas property purchases, as long as the required tax is paid.

The discussion paper explains,” The Government welcomes foreign investment into Australia. This investment has many benefits, including supporting existing jobs and creating new employment opportunities for Australians.

“Foreign investment has helped build Australia’s economy and will continue to enhance the wellbeing of Australians by supporting future economic growth and prosperity.

“Australia’s foreign resident CGT regime is generally consistent with international practice and the approach taken in Australia’s modern tax treaties. This consistency helps to promote foreign investment in Australia.

“It is, however, important that foreign residents investing in Australia comply with Australian law, including their Australian taxation obligations. There can be difficulties in collecting tax from foreign resident taxpayers. This usually occurs where no tax return has been lodged and the taxpayer has little or no other connection to Australia.

“As announced, the non-final withholding tax will apply to transactions involving the ‘taxable Australian property’ of a foreign resident, regardless of whether the transaction gives rise to a capital gain or ordinary income.”

The withholding amount is a non-final payment of tax and would be credited to the account of the foreign resident, but the payer “will need to provide sufficient information to the Commissioner to enable the remitted amount to be credited to the correct payee.”

Submissions can be made by email to tapwitholding@treasury.gov.au and the closing date is Friday 28 November.

Meanwhile, there is no shortage of wealthy foreign investors looking to migrate to Australia and buy prime real estate.

From 24 November 2012-30 September 2014, a massive 91% of applications for the fast-track Significant Investor Visa (SIV) programme and 88% of those granted were for wealthy Chinese investors, the latest data shows.

The SIV is available to foreigners who invest more than AUS$5million in the Australian economy, but housing commentators say there is a knock-on effect as successful applicants look to purchase high-end real estate.

Hong Kong residents received 3.2% of granted SIVs, South Africans 1.6%, and Japanese and Malaysians 1.1%.

Under the programme, wealthy foreigners can move to Australia immediately and be eligible for permanent visas after four years, if they  invest in approved real estate managed funds, bonds or Australian companies.