On 6 April 2017, the Legislative Instrument PAYG Withholding variation for foreign resident capital gains withholding payments – income tax exempt entities (Legislative Instrument) was registered as F2017L00390.
Purchasers and transferees of certain types of CGT assets must withhold an amount under Subdiv 14‑D of Schedule 1 to the TAA where they acquire the asset from a foreign resident and the asset is:
- taxable Australian real property (TARP);
- an indirect Australian real property interest; or
- an option or right to acquire these types of property or interests.
The amount payable to the Commissioner under the withholding regime is generally 10 per cent of the asset’s purchase price. However, s. 14-235(5) of Schedule 1 to the TAA provides the Commissioner with a discretion to vary the amount, or classes of amounts, payable.
The purpose of this Legislative Instrument is to avoid unnecessary withholding in circumstances where no income tax will be payable by the seller of the relevant property.
The Legislative Instrument varies to nil the amount that would otherwise have to be paid to the Commissioner under s. 14-200 of Schedule 1 to the TAA where certain acquisitions of taxable Australian property occur from income tax exempt entities. (Broadly, an exempt entity in s. 995-1(1) of the ITAA 1997 is an entity all of whose ordinary income and statutory income is exempt from income tax, or an untaxable Commonwealth entity.)
The entity must provide the purchaser with evidence that they are an income tax exempt entity — either in the form of:
- a private binding ruling issued by the ATO confirming that the entity is income tax exempt in the year in which the transaction occurs; or
- documentation showing that the entity is endorsed for income tax exemption as a registered charity under item 1.1 of s. 50-5 of the ITAA 1997.
The Legislative Instrument removes the need for an income tax exempt entity to make an application for a variation under s. 14-235(2) of Schedule 1 to the TAA.
In summary- Key Points:
- Legislative Instrument PAYG Withholding variation for foreign resident capital gains withholding payments – income tax exempt entities — registered on 6 April 2017 — removes the requirement for a purchaser to withhold an amount in certain circumstances where it acquires taxable Australian property from an income tax exempt entity.
- For nil withholding to apply, the vendor entity must provide to the purchaser either:
- evidence of a private binding ruling confirming its income tax exemption for the year in which the transaction occurs; or
- documentation showing that it is endorsed for income tax exemption as a registered charity under s. 50-5 of the ITAA 1997.