Law Companion Guideline
LCG 2016/7A1 - Addendum
Foreign resident capital gains withholding regime: options
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Addendum
This Addendum amends Law Companion Guideline LCG 2016/7 to reflect amendments to the foreign resident capital gains withholding (FRCGW) threshold and withholding rate pursuant to Treasury Laws Amendment (Foreign Resident Capital Gains Withholding Payments) Act 2017 (Act No. 57 of 2017). The changes will apply to contracts entered into on or after 1 July 2017:
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- for real property disposals where the contract price is $750,000 and above (currently $2 million)
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- the FRCGW withholding tax rate will be 12.5% (currently 10%).
The existing threshold and rate will apply for any contracts that are entered into before 1 July 2017, even if they are not due to settle until after 1 July 2017.
LCG 2016/7 is amended as follows:
Omit:
Example 2 - Property with market value less than $2 million
Substitute:
Example 2 - Property with market value less than the withholding threshold
(a) Omit the words 'If the withholding obligation arises, the purchaser must withhold from the vendor, and pay to the Commissioner, an amount equal to 10% of:'; substitute 'If the withholding obligation arises from a transaction entered into on or after 1 July 2017, the purchaser must withhold from the vendor, and pay to the Commissioner, an amount equal to 12.5% of:'.
(b) Insert new paragraph:
6A. For transactions entered into on or after 1 July 2016 and before 1 July 2017, the withholding rate is 10%.8A
(c) Insert footnote 8A at the end of paragraph 6A.
8A. As well as an increase to the withholding rate, the withholding threshold was reduced from $2 million to $750,000: Treasury Laws Amendment (Foreign Resident Capital Gains Withholding Payments) Act 2017.
(a) Omit all occurrences of '10%'; substitute '12.5%'.
(b) At the end of footnote 10, insert 'Applicable withholding threshold for transactions entered into on or after 1 July 2017.'.
(a) Omit all occurrences of '$2 million'; substitute '$750,000'.
(b) At the end of footnote 13, insert 'Applicable withholding threshold for transactions entered into on or after 1 July 2017.'.
(c) Insert footnote 13A:
13A. Applicable withholding threshold for transactions entered into on or after 1 July 2017.
(d) At the end of footnote 14, insert 'Applicable rate for transactions entered into on or after 1 July 2017.'.
(a) Omit '10%'; substitute '12.5%'.
(b) At the end of footnote 16, insert 'Although it specifies the existing 10% withholding rate, the intent is still applicable.'.
(a) Omit all occurrences of '$2 million'; substitute '$750,000'.
(b) At the end of footnotes 17 and 18, insert 'Applicable withholding threshold for transactions entered into on or after 1 July 2017.'.
(c) After the paragraph, insert:
15A.If a purchaser acquires an option before 1 July 2017 the purchaser will be subject to a withholding rate of 10%. However, if the option is acquired on or after 1 July 2017 then a withholding rate of 12.5% will apply to the option's cost base at the time of the acquisition.
15B. If the purchaser subsequently exercises the option before 1 July 2017 then a withholding rate of 10% will apply to the asset - if the asset is TARP, or indirect Australian real property interests giving rise to company title interests, it only applies where the purchase price is $2 million or more.
15C. If the purchaser subsequently exercises the option on or after 1 July 2017, a withholding rate of 12.5% will apply - if the asset is TARP, or indirect Australian real property interests giving rise to company title interests, it only applies where the purchase price of the asset is $750,000 or more.
7. Paragraphs 21, 27, 30, 33 and 62
Omit '2017'; substitute '2018'.
Omit '$3 million (being 10% of $30 million)'; substitute '$3.75 million (being 12.5% of $30 million)'.
(a) Omit the heading; substitute ' Example 2 - Property with market value less than the withholding threshold '.
(b) Omit '2016'; substitute '2017'.
(c) Omit '$1.5 million'; substitute '$600,000'.
Omit '$50 (being 10% of $500)'; substitute '$62.50 (being 12.5% of $500)'.
(a) Omit '2017'; substitute '2018'.
(b) Omit '$1.5 million'; substitute '$600,000'.
(c) Omit '$2 million'; substitute '$750,000'.
Omit '2018'; substitute '2019'.
(a) Omit '10%'; substitute '12.5%'.
(b) Omit '$6.5 million (being 10% of $65 million)'; substitute '$8.125 million (being 12.5% of $65 million)'.
Omit '$1,000 (being $10% of $10,000)'; substitute '$1,250 (being $12.5% of $10,000)'.
Omit '$300,000 (being $10% of $3 million)'; substitute '$375,000 (being $12.5% of $3 million)'.
(a) Omit '2017'; substitute '2018'.
(b) Omit '$2 million'; substitute '$750,000'.
Omit '$2 million'; substitute '$750,000'.
Omit '$1,000 (being $10% of $10,000)'; substitute '$1,250 (being $12.5% of $10,000)'.
Omit '$2 million (being the $1.99 million'; substitute '$750,000 (being the $740,000'.
Omit the paragraph; substitute:
48. Goanna Co withholds from $740,000 (being $750,000 less the $10,000 that was paid for the option) and remits $92,500 (being 12.5% of $740,000) to the Commissioner on the day of settlement.
Omit '$10 (being 10% of $100)'; substitute '$12.50 (being 12.5% of $100)'.
This Addendum applies on and from 22 June 2017.
Commissioner of Taxation
26 June 2017
© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA
You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
References
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| You are here | 26 June 2017 | Original ruling | |
| 19 February 2018 | Consolidated ruling |