10% withholding shake-up to property market by Nexia Australia

Buyer beware: More tax compliance from 1 July 2016 10% withholding shake-up to property market

Independent member of Nexia International

What happened? Wide variety of situations where 10% withholding rule can apply:

1. Applies to any acquisition (not just limited to purchases)

2. Applies to acquisition from resident vendor

Although one of the main aims of this 10% withholding rule is to ensure that more foreign residents lodge their Australian tax returns, unfortunately this 10% withholding rule can potentially also apply to property purchases from resident vendors. This is because even a resident vendor can be a “relevant foreign resident”5 (i.e. a certain type of resident that can be subject to the 10% withholding rule) if certain actions (e.g. obtaining a clearance certificate or residency declaration) are not undertaken by settlement date.

as well (if no clearance certificate / vendor declaration)

Although we only discuss purchase transactions in this alert, please note that this 10% withholding rule is not

From 1 July 2016, all purchasers of certain types of Australian property (whether purchased from a resident or foreign resident vendor) must withhold 10% of the purchase price, unless the transaction is excluded from these rules or the parties undertake certain actions before settlement date. Foreign resident1 vendors are only subject to capital gains tax (CGT) on the gain they make from the disposal of CGT assets that are taxable Australian property (TAP assets)2.

just limited to purchases – this 10% withholding rule can also apply to other types of property transactions. Furthermore, this rule has potential application to all acquisitions6 - whether effected through a purchase, a transfer of relevant property via gifts, divorce proceedings or other distributions (e.g. in specie property distributions from trusts or from deceased estates).

However, if the foreign resident does not voluntarily lodge a tax return and pay the tax, it is difficult for the Australian Taxation Office (ATO) to collect tax on these types of transactions (especially if the foreign resident vendors are not physically present in Australia or have no other investments in Australia). Therefore new legislation has been enacted3 that attempts to capture such transactions by imposing a 10% withholding tax on any purchaser that acquires certain types of TAP assets from such foreign resident vendors on or after 1 July 2016 (for vanilla sale of land transactions the date of acquisition will be when the sale contract was entered into).

Practical example illustrating how the 10% withholding rule operates (without clearance certificate)

Vendor

The principal rule is that a purchaser will:

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effectively pay 10% of the purchase price to the ATO (on or before settlement) to serve as a prepayment of the foreign resident vendor’s tax liability (that will be set-off against the vendor’s tax liability calculated when the vendor lodges a tax return); and only pay the foreign resident vendor 90% of the purchase price agreed upon (i.e. 10% of funds are withheld from their sale proceeds).

The 10% withholding is paid by the purchaser as part of the purchase price and not in addition to the purchase price. The purchaser does not have any liability to pay the vendor to the extent that an amount has been paid to the ATO4. Date purchase contract entered into (CGT event A1) Purchaser to pay full Purchaser must pay 10% of purchase price to vendor purchase price to ATO

Pays $150k deposit

Pays $2.55m (90% x $3m - $150k) = $2.55m

Sale Contract

Settlement

Price = $3m

$3m Residential Property

1 August 2016

1 October 2016 Pays $300k on settlement to ATO Pays $2.55m to nonresident vendor (as previous $150k was paid as deposit on date of sale contract)

Purchaser

Pays $150k deposit on 1 August 2016

Pays balance on 1 October 2016 = (90% of $3m) -$150k = $2.55m

Pays 10% of purchase price to ATO on 1 October 2016 = 10% of $3m = $300k No 10% withholding if

1 July 2016

had clearance certificate

What does this mean for you? ■■

What assets are subject to this rule?

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When will this rule not apply?

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Type of TAP asset Taxable Australian real property (TARP assets)9

Examples include

Possible exceptions

Real property situated in Australia10 Lease of land situated in Australia Mining, quarrying or prospecting rights of minerals situated in Australia

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An interest of 10% or more in an entity (e.g. company or trust) whose underlying value is principally derived from TARP assets.

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What can parties do to prevent this rule from applying?

If you enter into a contract to purchase certain types of CGT assets on or after 1 July 2016, you can potentially be subject to the 10% withholding rule unless any of the 3 conditions below are satisfied: 1.

The CGT asset is not a type of TAP asset that is subject to the 10% withholding rule (see point 1 below); or

The relevant CGT asset is a type of TAP asset that would normally be subject to the 10% withholding rule, but: a.

the asset forms part of an excluded transaction (see point 2A below); or

the vendor can prove that the vendor is not a relevant foreign resident by producing either a vendor clearance certificate or declaration, depending on the type of TAP asset (see point 2B below).

1. What CGT assets are not subject to the 10% withholding rule (because they are not relevant TAP assets)?

Indirect Australian real property (IARP assets)11

An option/right to acquire such TARP or IARP assets

Option to buy TARP assets Option to buy IARP assets

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< $2m market value Other excluded transaction Clearance certificate

< $2m market value (for company title interests only) Other excluded transaction Residency declaration Other excluded transaction Residency declaration

Not all TAP assets are subject to this 10% withholding rule. Examples of CGT assets not subject to 10% withholding rule include: 1(a) Taxable Australian Property (TAP) assets used in

1(b) Declaration that membership interest is not an IARP asset (and therefore not subject to the 10% withholding rule)

carrying on a business by a foreign entity through a

When given the declaration, purchaser must not know

PE in Australia

the declaration to be false

1(b) Assets that are not indirect Australian real property interests (IARP) – e.g. < 10% interest or entity not land-rich

1(a) TAP assets used in carrying on a business through a PE In Australia are not subject to the 10% withholding rule In particular, TAP assets (that do not fall into one of the 3 categories of TAP assets set out in the table opposite) that are used in carrying on a business by a foreign entity through a permanent establishment (PE) in Australia will not be subject to this 10% withholding rule (even if such assets are bought from a relevant foreign resident). This is mainly because the Government believes7 such non-residents will have a taxable presence in Australia (i.e. through their PE)8 – and therefore will pay Australian tax on the sale of the assets of the PE (and therefore the 10% withholding is not necessary). However, whenever a purchaser buys any of the other 3 types of assets mentioned in the table opposite, from a relevant foreign resident, the purchaser will incur a 10% withholding liability, if a relevant exception (discussed in 2(a) & 2(b)) does not apply.

A vendor may make a declaration in writing12 (valid up to 6 months after the day the declaration was made) that a membership interest (i.e. share/interest in a company or trust) is not an IARP asset because the relevant share/interest:

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is in a company/ trust that is not land-rich (i.e. does not satisfy the principal asset test); and

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does not comprise10% or more of the shares/interests in the company of trust (i.e. does not satisfy the non-portfolio test13).

Provided the purchaser does not know the declaration to be false14when the vendor provides this declaration to the purchaser, this will mean that the purchaser will not be subject to the 10% withholding rule. Although such a declaration is not a legislative instrument (i.e. the declaration is not made in the exercise of a power delegated by Parliament), various administrative penalties apply if the vendor makes a false or misleading declaration15.

2. What relevant TAP assets are not subject to the 10% withholding rule?

How does the $2m exclusion operate if real estate is purchased using an option contract?

2(a) No 10% withholding because TAP asset forms part of an excluded transaction

No $2m exclusion on grant or transfer of option18

There are specific carve-outs from this 10% withholding rule (i.e. these carve-outs apply without the need to obtain a clearance certificate or have any declarations as set out in 2(b) below).

i. $2 million market value exclusion If the $2 million market value exception applies, there is no need to obtain a clearance certificate In particular, there is a specific carve out for real estate with a market value of less than $2 million – this means a purchaser of lower valued real estate will not have to withhold 10% of the purchase price. For arm’s length sale of real property transactions, the market value would usually be the purchase price16 / first element of cost base (excluding stamp duty and legal costs since market value is determined at date of signing the contract). Furthermore, GST would be excluded if the purchaser is not registered for GST but included if the purchaser is registered for GST. For non-arm’s length transactions the market value substitution rule will apply to require the purchaser to establish the correct market value of the real property at the date of acquisition17. Examples of assets that can qualify for the $2 million exclusion: 1.

Residential premises

Commercial property

Vacant land

Easements

Covenants

Mortgages

Strata title schemes

Company title interests (i.e. a type of IARP asset that confers the holder of such a share the right to occupy the real property to which the company has legal title)

Multiple purchasers will only qualify for this exclusion if the sum of the market value of all their respective interests is less than $2 million. Conversely, this means that if the aggregated purchase price is $2 million or more, each purchaser must withhold in proportion to their percentage of the total purchase price.

Where a purchaser buys real estate from a relevant foreign resident using an option contract, the purchaser must pay the ATO 10% of the option fee on or before the option is granted or transferred (i.e. when the purchaser becomes the owner) – even if the real estate has a market value of less than $2 million (i.e. no $2 million exclusion on the grant or transfer of an option). $2m exclusion on exercise of option19 However, where real estate is acquired through the exercise of an option, and the real estate has a market value of less than $2 million, no 10% withholding is payable on exercise of the option (i.e. $2 million exclusion applies on exercise of option). Note that if the market value of the real estate is $2 million or more, 10% withholding is payable on the exercise of the option. However, to prevent double counting where an option has been granted and exercised, the 10% withholding obligation will be calculated on the difference between the aggregate of the purchase price and the option fee paid less the option fee20.

ii. Other exclusions Exclusions because virtually impossible to determine residency status of vendor Other exclusions will apply to the following types of transactions (mainly because it would be impossible to determine the residency status of the vendor/counterparty): Other exclusions – no 10% withholding on the following transactions 1

On-market transactions on a stock exchange (e.g. purchase of listed shares)

Off-market broker-operated transactions that are immediately reported to market after sale

Transactions already subject to other withholding obligations

Securities lending transactions (because such transactions do not trigger a CGT liability for vendor)

Transactions entered into because of external administration or bankruptcy (because 10% withholding should not disturb the priority of creditor claims)

If any of these exclusions apply, there is no need for an ATO clearance certificate (for relevant TAP assets or company title interests) or for declarations (for options/rights or IARP assets excluding company title interests).

2(b) No 10% withholding because vendor can prove that vendor is not a relevant foreign resident

As set out in the table below, if none of the exclusions mentioned above applies, a vendor will be a relevant foreign resident21 and the purchaser will be subject to the 10% withholding rule:

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Automatically – if dealing with TARP assets

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If the knowledge condition (discussed below) is satisfied – if dealing with IARP assets or options/right to acquire such TARP or IARP assets When is vendor a relevant foreign resident?

Possible exceptions (since no exclusions apply)

TARP asset or company title interests

Automatically

Clearance certificate

IARP asset (excluding company title interests)

If purchaser satisfies Residency declaration knowledge condition (e.g. knows or has reason to believe vendor is foreign resident)

An option/right to acquire such TARP or IARP assets

If purchaser satisfies Residency declaration knowledge condition (e.g. knows or has reason to believe vendor is a foreign resident)

Type of TAP asset

10% withholding rule

*Clearance certificate TARP or company title interest

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No 10% withholding rule

* Vendor must provide clearance certificate obtained from ATO to purchaser before settlement

Since the vendor24 needs to apply for the clearance certificate (i.e. the ATO does not issue such certificates automatically), this also means that if a resident vendor does not apply or obtain a clearance certificate or do not provide such a certificate to the purchaser before settlement date, such a purchaser would be subject to the 10% withholding rule (i.e. because such a resident vendor will be a relevant foreign resident for the 10% withholding rule purposes only). If more than one vendor is involved, each vendor must apply separately for a clearance certificate and if any of the vendors fails to provide such a clearance certificate to the purchaser – then, absent a variation - the purchaser may have to withhold 10% of the purchase price (in proportion to each vendor’s interest in the property)25.

To ensure that resident vendors can provide the purchasers with valid clearance certificates by

However, a fail-safe way to avoid such an unfavourable result (and to avoid a vendor being treated as a relevant foreign resident and therefore make the purchaser subject to the 10% withholding rule) is for the purchaser to obtain before settlement:

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either a clearance certificate from the ATO - for TARP assets or company title assets; or

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a residency declaration from the vendor - for IARP assets (excluding company title interests) and options/rights to acquire TARP or IARP assets.

i. Clearance certificate exception for resident vendors – for TARP & company title assets Resident vendor must provide valid clearance certificate to purchaser before settlement A purchaser that purchases TARP assets (or company title interests) costing $2 million or more will automatically22 be subject to the 10% withholding rule unless the vendor provides the purchaser with a valid ATO clearance certificate before settlement. The ATO will only issue a clearance certificate if - based on available information - there is nothing to suggest that the vendor will be a relevant foreign resident23 (this means only resident vendors can be granted clearance certificates).

settlement date, we would recommend such vendors to apply for their clearance certificates as soon as possible (it is not recommended to wait to the last minute before settlement date to apply for a clearance certificate because if there is no clearance certificate by settlement date, the 10% withholding rule will apply).

However, since clearance certificates are only valid for a period of 12 months26 from when the certificate was issued, this can pose a problem for properties with a long settlement period (e.g. if there is a 12 month settlement period, a certificate applied for before signing the contract would no longer be valid at settlement date – and therefore the 10% withholding rule would apply – unless the vendor applied for a new clearance certificate before that time).

How does a vendor obtain a clearance certificate? Although application for a clearance certificate is free of charge, it places a significant compliance burden on all parties involved in the real estate process. In particular, the vendor will have to answer specific questions that have been formulated by the ATO to determine whether the purchaser should be subject to the 10% withholding rule (i.e. whether the vendor is in fact a resident or at least that there is nothing to suggest that the vendor will be a relevant foreign resident). Furthermore the vendor will be required to provide documents to prove their residency status (which can be attached to the application form). Nexia Australia can complete and lodge the clearance certificate27 application form on your behalf. It is expected that clearance certificates will usually be issued within 14 to 28 days (shorter timeframes for applications lodged electronically and longer timeframes if the transaction is “high” risk). A vendor that is dissatisfied with a decision made by the ATO about whether to issue a clearance certificate (or not), may object pursuant to the normal taxation objections, review and appeal process28. Having a clearance certificate does not automatically mean that a vendor taxpayer will be a resident for all tax purposes. It only means that the purchaser is not required to withhold an amount from the purchase price.

ii. Residency declaration exception – for IARP assets (excluding company title assets) or options/rights to acquire TARP of IARP assets If the purchaser knows or has reason to believe that the vendor is a foreign resident, the vendor will be considered a relevant foreign resident and the purchaser will be subject to the 10% withholding rule, unless the vendor provides the purchaser with a residency declaration (which the purchaser does not know to be false) before settlement. A purchaser that purchasers IARP assets (excluding company title interests) will only be subject to the 10% withholding rule if the purchaser satisfies the knowledge condition. The knowledge condition will be satisfied if the purchaser:

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knows29 or reasonably believes that the vendor is a foreign resident (i.e. according to tax purposes); or

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does not reasonably believe that the vendor is a resident (i.e. according to tax purposes) and: 1.

the vendor has an address outside Australia; or

the purchaser has to pay at least some of the purchase price outside Australia.

Other IARP assets & options / rights (subject to knowledge condition*)

10% withholding rule

Residency declaration purchaser does not know to be false?



No 10% withholding rule

* 2 Conditions for knowledge requirement 1.

Purchaser knows / has reasonable grounds to believe that the vendor is a foreign resident; or

Purchaser does not have reasonable grounds to believe the vendor is a resident and: a.

The vendor has an address outside Australia; or

The purchaser has to pay at least some of the purchase price outside Australia

This knowledge condition-test therefore farms out the determination of the vendor’s residency status (according to tax purposes) to the purchaser - who must determine (on reasonable objective grounds) whether the vendor is a foreign resident30. This test can impose significant challenges – especially if a resident vendor (whom the purchaser does not reasonably believe to be a resident) has an address outside Australia or some of the purchase price is paid outside Australia. In such a case the new legislation will then simply deem the resident to be a relevant foreign resident (which means that the purchaser will be subject to the 10% withholding rule). If this knowledge condition is satisfied (and no other exceptions are met), the 10% withholding rule will not apply if the vendor makes a declaration in writing31 (valid up to 6 months after the day the declaration was made) that the vendor is an Australian resident. Similar to the IARP declaration discussed earlier, provided the purchaser does not know the declaration to be false32 when the vendor provides this declaration to the purchaser (we assume just before settlement), this will mean that the purchaser will not be subject to the 10% withholding rule. Although such a declaration is not a legislative instrument (i.e. the declaration is not made in the exercise of a power delegated by Parliament), various administrative penalties apply if the vendor makes a false or misleading declaration33.

3. When and how can the 10% withholding rate be varied? In circumstances where the 10% withholding rule applies, a vendor34, purchaser, a vendor’s creditor or a mortgagee in possession of the asset may still apply to the ATO to vary the amount of withholding (even to 0%) in the circumstances listed in the table below: When can amount of withholding be varied?

Because of:

Relevant foreign resident vendor does not make capital gain (e.g. capital gain will be less than the 10% withholding amount)

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Sells asset at capital loss Main residence exemption CGT rollover

Relevant foreign resident vendor will not have an income tax liability if withholding amount is not varied (e.g. the vendor has a tax deduction that exceeds assessable income including the capital gain)

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Carried forward capital losses Carried forward tax losses

There are multiple vendors and only one of the vendors is a relevant foreign resident

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Creditor of foreign resident vendor has mortgage over asset subject to 10% withholding rule (and payment of the full 10% withholding may jeopardise the creditor’s ability to recover a debt from the vendor)

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If vendor can provide security to the ATO that ultimate CGT liability will be paid35

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Furthermore, a purchaser subject to this 10% withholding rule needs to lodge a purchaser payment notification form with the ATO on or before settlement date. Only then will the purchaser be provided with a payment reference number which purchasers can use as an identifier when making the withholding payment (either by electronic fund transfer or by cheque). Nexia Australia can complete and lodge this purchaser payment notification form37 on your behalf. In addition to this, such a purchaser must register as a withholder38 and if the purchaser fails to pay over the 10% to the ATO, the purchaser will be liable to pay (as a penalty to the ATO) an amount equal to the 10% that was not withheld39.

How can Nexia Australia help you? Important that the purchaser and vendor communicate with each other about these issues so that they can be resolved prior to signing the contract

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Multiple vendors but only 1 relevant foreign resident

ATO must not be given a preferential position over other creditors Proceeds of sale (limited to only 90% if have to withhold 10%) may be insufficient to discharge debt Security provides sufficient assurance to ATO

This new legislation places an inescapable compliance burden on parties involved in selling property in Australia and are leading to a shake-up of the Australian real estate industry. In particular, when buying TARP assets (e.g. residential or commercial premises) from 1 July 2016, the following issues should be considered: Scenario when selling TARP assets

Action required to avoid 10% withholding rule

Purchase price < $2 million (resident / foreign vendor)

No action required

Purchase price ≥ $2 million (resident vendor)

Vendor required to apply for a clearance certificate and provide it to the purchaser before settlement

Purchase price ≥ $2 million (foreign vendor)

10% withholding rule unless variation before settlement

Nexia Australia can complete and lodge the withholding rate variation application form36 on your behalf. Such a variation will only be effective once the ATO allows such a variation in writing (usually within 28 days of the application being made) and is issued to the purchaser before settlement to ensure the reduced withholding rate applies.

4. Compliance impact of this measure This measure therefore imposes an obligation on the purchaser to withhold 10% of the purchase price when buying certain TAP assets.

Furthermore, a vendor’s cash flow may be affected since the vendor will only receive 90% of the sale price at settlement (and the benefit of the remaining 10% in the form of a tax credit only once the vendor lodges their tax return).

This will inevitably lead to added compliance costs for both the purchaser and vendor when proving the tax residency status of the vendor and whether any exemptions apply.

Please contact your Nexia Advisor if you are

To facilitate this (and to assist the purchaser in determining whether it needs to pay 10% of the purchase price to the ATO):

connection.

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you to obtain a clearance certificate or residency

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sale contracts may need to be updated to insert clauses: −− where the vendor can confirm its residency status – and if the vendor is a non-resident, this 10% withholding obligation may also have to be included in the contract ; −− where the obtaining of a clearance certificate or residency declaration by the vendor will be a condition precedent for the sale to go through; and the vendor can make a number of declarations to determine whether any exemptions should apply (for IARP assets).

thinking of buying real estate and know or suspect that the vendor is a non-resident or has a foreign Also, even if you are a resident vendor, we can help declaration so that the 10% withholding rule will not apply to you.

Australia Adelaide Office Level 3, 153 Flinders Street Adelaide SA 5000 GPO Box 2163, Adelaide SA 5001 p +61 8 8139 1111, f +61 8 8139 1100 infoSA@nexiaem.com.au, www.nexiaem.com.au Brisbane Office Level 28, 10 Eagle Street Brisbane QLD 4000 GPO Box 1189 Brisbane QLD 4001 p +61 7 3229 2022, f +61 7 3229 3277 email@nexiabrisbane.com.au, www.nexia.com.au Canberra Office Level 7, St George Centre, 60 Marcus Clarke Street GPO Box 500, Canberra ACT 2601 p +61 2 6279 5400, f +61 2 6279 5444 mail@dnexia.com.au, www.nexia.com.au Darwin Office Level 2, 62 Cavenagh Street, Darwin NT 0800 GPO Box 3770, Darwin NT 0801 p +61 8 8981 5585, f +61 8 8981 5586 infoNT@nexiaem.com.au, www.nexiaemnt.com.au Melbourne Office Level 12, 31 Queen Street Melbourne VIC 3000 p +61 3 8613 8888, f +61 3 8613 8800 info@nexiamelbourne.com.au, www.nexia.com.au Perth Office Level 3, 88 William Street, Perth WA 6000 GPO Box 2570, Perth WA 6001 p +61 8 9463 2463, f +61 8 9463 2499 info@nexiaperth.com.au, www.nexia.com.au Sydney Office Level 16, 1 Market Street, Sydney NSW 2000 PO Box H195, Australia Square, NSW 1215 p +61 2 9251 4600, f +61 2 9251 7138 info@nexiacourt.com.au, www.nexia.com.au New Zealand Christchurch Office 2nd Floor, 137 Victoria Street, Christchurch PO Box 4160, Christchurch p +64 3 379 0829, f +64 3 366 7144 office@nexiachch.co.nz, www.nexiachch.co.nz

1 - Whether an entity (e.g. individual, company, trust or partnership) is a resident or foreign resident for tax purposes is determined by reference to common law principles and depends on a specific taxpayer’s facts and circumstances. 2 - Examples of TAP assets include Australian real property, an interest of 10% or more in an entity whose underlying value is principally derived from Australian real property, assets used in carrying on a business through a permanent establishment (PE) in Australia and rights and options to acquire any of these assets. 3 - The Tax and Superannuation Laws Amendment (2015 Measures No 6) Act 2016 received Royal Assent on 25 February 2016 and inserted a new Subdivision 14-D: Foreign resident capital gains withholding payments in the Taxation Administration Act 1953 (TAA 1953). 4 - s16-20(2) of the TAA 1953 5 - s14-210 of the TAA 1953 6 - s14-200(1)(a) of the TAA 1953 7 - Paragraph 2.34 of the Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2015 Measures No 6) Act 2016 8 - Following this “taxable presence” logic for the exclusion from the 10% withholding rule, it is therefore questioned why purchasers who buy relevant TAP assets (e.g. Australian real estate or IARP assets) from resident vendors may be subject to the 10% withholding obligation if there is no clearance certificate or relevant declaration (obtained from the resident vendor who will also have a taxable presence in Australia). 9 - s855-20 of the Income Tax Assessment Act 1997 (ITAA 1997) 10 - Examples include residential premises, commercial property, vacant land, easements, covenants, mortgages and strata title schemes. 11 - s855-25 of the ITAA 1997 12 - s14-225(2) of the TAA 1953 13 - s960-195 of the ITAA 1997 14 - s14-210(3)(b) of the TAA 1953 15 - s14-230 of the ITAA 1953 imposes 120 / 80 / 40 penalty units if the vendor acts knowingly / recklessly / not taking reasonable care when making a false or misleading declarations (1 penalty unit = $180 on or after 1 July 2015). 16 - Paragraph 10 of LCG 2016/6 17 - The ATO does not prescribe who may undertake a market valuation, but a valuation must be reliable and use an appropriate valuation methodology (Paragraph 15 of LCG 2016/6). 18 - Paragraphs 8-12 of LCG 2016/7 19 - Paragraphs 13-17 of LCG 2016/7

20 - Regardless of whether 10% withholding was paid on the option fee when the option was originally granted (e.g. no withholding may have been paid since the vendor gave a residency declaration that the purchaser does not believe to be untrue). 21 - s14-210(1) of the TAA 1953 22 - Regardless of whether the purchaser knows or believes the purchaser to be a foreign resident. 23 - s14-210(1) of the TAA 1953 24 - Because the entity that has legal title to the asset, is the entity required to obtain the clearance certificate, a trustee holding a property on behalf of a trust or superannuation fund is the relevant entity that should apply for the clearance certificate (as opposed to the trust or superannuation fund). 25 - Legislative Instrument, PAYG withholding variation for foreign resident capital gains withholding payments – acquisitions from multiple entities, 30 June 2016. 26 - S14-220 (1) and (2)(c) and s14210(2)(a)(ii) of the TAA 1953 and ATO website proposes this period to be 12 months from the date of issue. 27 - Form NAT 75885 (paper) or QC 49485 (electronic) on the ATO website. 28 - s20-80 of the TAA 1953 and Part IVC of the TAA 1953. 29 - This only refers to actual knowledge (as opposed to constructive knowledge) on the part of the purchaser (s14-210(1)(a) of the ITAA 1953 and explanatory memorandum paragraph 2.75). 30 - It is strange that purchasers are saddled with this responsibility of determining a vendor’s residency status (or what they reasonably believe to be their residency status), particularly since the determination of tax residency is no easy exercise (as evidenced by various High Court decisions). Furthermore, it is unclear whether there is any right of review of a purchaser’s decision as to the residency status of the vendor. 31 - s14-225(1) of the TAA 1953. 32 - s14-210(3)(b) of the TAA 1953 33 - s14-230 of the TAA 1953 imposes 120 / 80 / 40 penalty units if the vendor knowingly / recklessly / not taking reasonable care when making a false or misleading declarations (1 penalty unit = $180). 34 - Including the grantor of an option that has not yet been exercised. 35 - Paragraph 68 of LCG 2016/5 36 Form QC 49486 on the ATO website 37 - Form QC 49487 on the ATO website 38 - Section 16-140 of the TAA 1953 39 - Section 16-30 of the TAA 1953

The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Australia. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Advisor. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omission of financial services licensees. Independent member of Nexia International