When engaging in transactions that could be subject to the foreign resident CGT withholding rules, both buyers and sellers must understand when specific exclusions may apply and how they can affect the withholding process.
Evidence for Exclusions:
As stated under S.14-215 of Schedule 1, various exclusions can remove the necessity for CGT withholding at the time of a property transaction. For instance, if the transaction involves the sale of assets as part of the administration of a bankrupt estate, the seller should provide documentation or evidence proving this situation. This assists the buyer in justifying the decision not to withhold CGT at settlement.
Valid Variation Notices:
If the standard foreign resident CGT withholding rate of 12.5% is too high relative to the seller's actual tax liability from the transaction, the seller (or even the buyer or a creditor in certain cases) can apply for a variation notice from the ATO. This notice can either reduce the withholding rate or set it to nil if justified by the circumstances.
Sellers typically seek a variation notice when:
Application by Buyers or Creditors:
Interestingly, legislation in S.14-235(3) of Schedule 1 allows not only sellers but also buyers or creditors to apply for a variation notice. Guidance on this process and what factors the ATO considers can be found in Law Companion Ruling LCR 2016/5.
Understanding these nuances is crucial for navigating the complexities of CGT withholding effectively. Ensuring that all parties are informed and equipped with the proper documentation can streamline the transaction process and prevent unnecessary financial strain.
For specific cases or further clarification, please contact Tax Ideas Accountants & Advisers on +61 2 83181545 or book an appointment through our live calendar.