Australians who buy expensive local properties from foreigners will have to withhold 10 per cent of the payment under proposed new rules.
The federal Treasury has created draft legislation that would require buyers to pay capital gains tax directly to the government on residential sales worth more than $2.5 million.
“Foreign residents are subject to capital gains tax on any capital gains they make from the disposal of Australian assets,” Treasury said.
“Voluntary compliance with these requirements, however, is extremely low and compliance action, by the Australian Taxation Office, is difficult to undertake.”
The withholding obligation applies to the buyer, not intermediaries such as brokers.
The government has taken several measures this year to make life harder for foreign investment, including a tighter regulatory regime, a high-profile forced sale and investigations of other possibly illegal transactions.
The proposed $2.5 million threshold has been set to minimise compliance costs and exclude most residential property sales conducted between Australian residents, Treasury said.
“This alleviates the need for purchasers to undertake the preliminary compliance obligation of determining the residency status of the vendor,” it said.
For properties valued above $2.5 million, buyers will have to make a withholding payment if they know or reasonably believe that the vendor is a foreign resident.
This payment will be due no later than the day they take ownership of the property.
“When working out the amount to pay to the commissioner, it is important to correctly identify the capital gains tax asset acquired,” Treasury said.
“This is particularly the case where multiple purchasers each purchase interests in a property.”
The 10 per cent amount is an estimate of the vendor’s final income tax liability, so sellers will still have to lodge an income tax return and pay any outstanding debt.
Interested parties have until 7 August to comment on the draft legislation.