Tax and Superannuation Laws Amendment (2015 Measures No. 6) Act 2016 (10 of 2016)

Schedule 2 Foreign resident capital gains withholding payments

Part 1 Main amendments

Taxation Administration Act 1953

1 At the end of Division 14 in Schedule 1

Add:

Subdivision 14-D - Capital proceeds involving foreign residents and taxable Australian property

Table of sections

14-200 Certain acquisitions of taxable Australian property from foreign residents

14-210 Whether an entity is a relevant foreign resident

14-215 Excluded transactions

14-220 Commissioner clearance certificates

14-225 Entity declarations

14-230 Administrative penalties for false or misleading declarations

14-235 Varying amounts to be paid to the Commissioner

14-200 Certain acquisitions of taxable Australian property from foreign residents

(1) You must pay to the Commissioner an amount if:

(a) you become the owner of a *CGT asset as a result of *acquiring it from one or more entities under one or more transactions; and

(b) subsection 14-210(1) (about foreign residents) applies to at least one of those entities at the time one of those transactions is entered into; and

(i) *taxable Australian real property; or

(ii) an *indirect Australian real property interest; or

(iii) an option or right to acquire such property or such an interest;

unless a transaction referred to in paragraph (a) is excluded under section 14-215.

Note: You must pay the amount on account of income tax possibly payable by the entities on their capital proceeds resulting from your acquisition of the CGT asset.

(2) You must pay the amount to the Commissioner on or before the day you became the *CGT asset's owner.

Note: There are penalties for failing to pay the amount (see Division 16).

(3) The amount to be paid to the Commissioner is:

(a) unless paragraph (b) applies - an amount equal to 10% of:

(i) the first element of the *CGT asset's *cost base just after the *acquisition; less

(ii) if the acquisition is the result of you exercising an option - any payment you made, and the *market value of any property you gave, for the option (or to renew or extend it); or

(b) the varied amount applying under section 14-235.

(4) This section does not apply if the amount that would otherwise be payable is nil.

14-210 Whether an entity is a relevant foreign resident

Is the entity a foreign resident at the time of the transaction?

(1) This subsection applies to an entity at the time a transaction is entered into if, at that time:

(a) you know that the entity is a foreign resident; or

(b) you reasonably believe that the entity is a foreign resident; or

(i) the entity has an address outside Australia (according to any record that is in your possession, or is kept or maintained on your behalf, about the transaction); or

(ii) you are authorised to provide a related financial benefit to a place outside Australia (whether to the entity or to anyone else); or

(d) the entity has a connection outside Australia of a kind specified in the regulations; or

(e) the *CGT asset to which the transaction relates is:

(i) *taxable Australian real property; or

(ii) an *indirect Australian real property interest, the holding of which causes a company title interest (within the meaning of Part X of the Income Tax Assessment Act 1936) to arise.

Note: This subsection is relevant to whether you must pay an amount to the Commissioner under section 14-200.

Exception - the entity gives you a clearance certificate

(2) Despite subsection (1), that subsection does not apply to the entity in relation to the transaction if:

(a) before you pay the Commissioner under section 14-200 in relation to the *CGT asset to which the transaction relates, the entity gives you a certificate about the entity that:

(i) was issued under subsection 14-220(1); and

(ii) is for a period covering the time the transaction is entered into; and

(b) the CGT asset is of a kind described in paragraph (1)(e) of this section.

Exception - the entity gives you a residency or interests declaration

(3) Despite subsection (1), that subsection does not apply to the entity in relation to the transaction if:

(a) before you pay the Commissioner under section 14-200 in relation to the *CGT asset to which the transaction relates, the entity gives you a declaration that:

(i) is about the entity or the CGT asset; and

(ii) was given under subsection 14-225(1) or (2); and

(iii) is for a period covering the time the transaction is entered into; and

(b) when you are given the declaration, you do not know the declaration to be false; and

(c) for a declaration given under subsection 14-225(1) - the CGT asset is not of a kind described in paragraph (1)(e) of this section.

14-215 Excluded transactions

Kinds of excluded transactions

(1) A transaction that results in the *acquisition of a *CGT asset is excluded under this section if:

(a) just after the transaction, the CGT asset:

(i) is *taxable Australian real property; or

(ii) is an *indirect Australian real property interest, the holding of which causes a company title interest (within the meaning of Part X of the Income Tax Assessment Act 1936) to arise;

and the *market value of the CGT asset is less than $2 million; or

(b) the transaction is on an *approved stock exchange; or

(d) an amount is already required to be withheld from a *withholding payment relating to the transaction; or

(e) subsection 26BC(3) of the Income Tax Assessment Act 1936 (about securities lending arrangements) applies in relation to the transaction as a result of the transaction being covered by subparagraph (a)(ii) of that subsection; or

(f) any of the entities to which subsection 14-210(1) (about foreign residents) applies at the time of the transaction:

(i) is a company for which any of the conditions in paragraph 161A(1)(a) of the Corporations Act 2001 (about insolvency and external administration) is satisfied; or

(ii) is, under a *foreign law, in the same or a similar position to a company covered by subparagraph (i); or

(g) the transaction arises from any of the following:

(i) the administration of the estate of a bankrupt;

(ii) a composition or scheme of arrangement accepted under Division 6 of Part IV of the Bankruptcy Act 1966;

(iii) a debt agreement under Part IX of that Act;

(iv) a personal insolvency agreement under Part X of that Act;

(v) circumstances that are, under a foreign law, the same or similar to those in any of the above subparagraphs.

Note: This section is relevant to whether you must pay an amount to the Commissioner under section 14-200.

Dealing with joint ownership etc. of certain CGT assets

(2) For the purposes of paragraph (1)(a), if:

(a) the *CGT asset is an interest in real property, or an interest in a *mining, quarrying or prospecting right; and

(b) just after the transaction, there are one or more similar interests in the same real property or right;

treat the *market value of the CGT asset just after the transaction as including the market value of each of those similar interests.

(3) Without limiting subsection (2):

(a) treat an interest as being similar to the *CGT asset if it is specified in regulations made for the purposes of this paragraph in relation to CGT assets of that kind; and

(b) treat an interest as not being similar to the CGT asset if it is specified in regulations made for the purposes of this paragraph in relation to CGT assets of that kind.

14-220 Commissioner clearance certificates

(1) The Commissioner may certify that, based on information before the Commissioner, there is nothing to suggest that an entity is or will be a foreign resident during a specified period.

Note: Such a certificate could result in you not being required to pay an amount under this Subdivision (see subsection 14-210(2)).

(2) A certificate under subsection (1):

(a) may be issued on application to the Commissioner in the *approved form; and

(b) is to be in writing; and

(3) For the purposes of (but without limiting) paragraph 388-50(1)(c), the Commissioner may require an application for a certificate under subsection (1) to state:

(a) whether the applicant holds or will hold specified *CGT assets on behalf of another entity during any part of the period for which the certificate is sought; and

(b) whether the applicant knows or reasonably believes that the other entity is or will be a foreign resident during that period.

Note: Section 388-50 sets out when an application is in the approved form.

(4) A certificate issued under subsection (1) is not a legislative instrument.

14-225 Entity declarations

Declaration that an entity is an Australian resident

(1) An entity may, in writing, declare that, for a specified period, the entity is and will be an Australian resident.

Note: Such a declaration could result in you not being required to pay an amount under this Subdivision (see subsection 14-210(3)).

Declaration that asset not an indirect Australian real property interest

(2) An entity may, in writing, declare that, for a specified period, specified *CGT assets are *membership interests but not *indirect Australian real property interests.

Note: Such a declaration could result in you not being required to pay an amount under this Subdivision (see subsection 14-210(3)).

Limit on the periods for which declarations have effect

(3) A period specified in a declaration under this section is of no effect to the extent that it includes days later than 6 months after the day the declaration is made.

Declarations are not legislative instruments

(4) A declaration under this section is not a legislative instrument.

14-230 Administrative penalties for false or misleading declarations

Knowingly making false or misleading declarations

(1) You are liable to pay the Commissioner a penalty of 120 penalty units if:

(a) you make a statement; and

(b) the statement is, or purports to be, a declaration under section 14-225; and

(c) the statement is false or misleading in a material particular, whether because of things in it or omitted from it; and

(d) you know, at the time of making the statement, that it is so false or misleading.

Note: Division 298 contains machinery provisions for administrative penalties.

Recklessly making false or misleading declarations

(2) You are liable to pay the Commissioner a penalty of 80 penalty units if:

(a) you make a statement; and

(b) the statement is, or purports to be, a declaration under section 14-225; and

(c) the statement is false or misleading in a material particular, whether because of things in it or omitted from it; and

(d) you were reckless in connection with the making of the statement.

Note: Division 298 contains machinery provisions for administrative penalties.

Not taking reasonable care in making declarations

(3) You are liable to pay the Commissioner a penalty of 40 penalty units if:

(a) you make a statement; and

(b) the statement is, or purports to be, a declaration under section 14-225; and

(c) the statement is false or misleading in a material particular, whether because of things in it or omitted from it; and

(d) you did not take reasonable care in connection with the making of the statement.

Note: Division 298 contains machinery provisions for administrative penalties.

14-235 Varying amounts to be paid to the Commissioner

Policies relevant to varying amounts

(1) In exercising a power under this section to vary an amount, the Commissioner must have regard to the need to protect a creditor's right to recover a debt.

Varying particular amounts

(2) The Commissionermay, in writing, vary a particular amount payable by you to the Commissioner under this Subdivision. The variation takes effect when you become aware of it.

Note: Decisions to vary, or not to vary, are reviewable (see section 20-80).

(3) Any of the following entities may apply to the Commissioner in the *approved form for a variation under subsection (2):

(a) you;

(b) an entity from which you *acquire, or could acquire, the *CGT asset;

(4) A variation made under subsection (2) is not a legislative instrument.

Varying classes of amounts

(5) The Commissionermay, by legislative instrument, vary classes of amounts payable to the Commissioner under this Subdivision.

Amounts may be reduced to nil

(6) The Commissioner's power under subsection (2) or (5) to vary an amount includes the power to reduce the amount to nil.

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