PAYG withholding variation for foreign resident capital gains withholding payments – deceased estate and legal personal representatives.
The foreign resident capital gains withholding regime (the Regime) commenced on 1 July 2016. Under the Regime, the acquisition of certain assets where at least one of the transferors is a foreign resident (within the meaning of section 14-210 of the Taxation Administration Act 1953) requires the transferee to withhold 10% of the total consideration to be remitted to the Australian Taxation Office (ATO).
For the Regime to apply certain conditions must be satisfied:
the asset acquired must be a relevant asset (for example, taxable Australian real property); and
the transferor (or at least one of the transferors) must be a relevant foreign resident; and
the acquisition must not be of an excluded asset (for example, real property transactions with a market value under $2 million).
Further discussion on the Regime can be found here.
The purpose of the Regime was to assist the ATO in the collection of Capital Gains Tax (CGT) payable by foreign residents when they dispose of a relevant asset. Inadvertently, the Regime required CGT withholding to occur in the event of the death of a transferor to which the Regime would ordinarily have applied.
The ATO has since released instrument number F2016L01396 (Instrument) which varies the amount of CGT withholding to nil provided that the transferee of the relevant asset is:
the deceased’s legal personal representative; or
a beneficiary of a deceased estate that obtains ownership by a direct transfer for the deceased’s estate; or
a surviving joint tenant that acquires a deceased joint tenant’s interest in a relevant asset.
As a result of the Instrument, Australian residents who meet the criteria of the Instrument will no longer be required to obtain a clearance certificate from the ATO to excuse themselves from the Regime as was previously required.
The Instrument commenced on 7 September 2016.
We expect to see the Commissioner release further instruments and guidelines such as this, as the Regime is worked through.
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