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The announcement that the Government will introduce a non-final withholding regime to support the operation of the foreign resident CGT regime from 1 July 2016 will be unwelcome for foreign corporations and foreign investors looking to acquire or construct Australian assets.
Broadly, where a foreign resident disposes of certain taxable Australian property, the purchaser will be required to withhold and remit to the Australian Taxation Office 10 per cent of the proceeds from the sale. The withholding regime will not apply in relation to residential property transactions valued under $2.5 million.
“Whilst the withholding regime is aimed at protecting the integrity of the foreign resident CGT regime it will act as a disincentive to foreign investors who may not be able to benefit from the tax withheld in their home country particularly if there is not a Double Tax Agreement in place with Australia,” said Don O’Brien NSW Head of Tax Grant Thornton.
“A significant flaw in the design of a 10% flat rate of withholding is that there may ultimately be no capital gain to tax in Australia but there are significant filing and administrative obligations on the foreign investor to obtain a refund of the amount withheld.”
“Whilst the start date is 1 July 2016 foreign investors will be making investment decisions now in an environment where they will not have sufficient detail to make informed investment decisions.”
“Uncertain tax laws spook foreign investors which produces one certain outcome – that foreign investors will invest elsewhere in tax jurisdictions where the tax outcomes are certain. Ultimately this proposed tax change is likely not to produce the tax collections expected particularly if it discourages foreign investors from investing in Australia.”
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To speak with Mr O'Brien for further information please contact:
Helina Lilley
National Public Relations Manager
T +61 2 8297 2421
M 0437 725 520
E helina.lilley@au.gt.com
About Grant Thornton Australia Limited
Grant Thornton Australia provides audit, tax and advisory services to dynamic, growing organisations and is a single national firm, with over 150 Partners, more than 1,200 people across Australia and national turnover of AUD $232 million. Grant Thornton International is the fastest growing international accounting network in the world, with a global turnover of US$3.7billion and more than 30,000 people, and was recently named 2013 Network of the Year by the International Accounting Bulletin.