Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2016-2017
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TREASURY LAWS AMENDMENT (FOREIGN RESIDENT CAPITAL GAINS
WITHHOLDING PAYMENTS) BILL 2017
EXPLANATORY MEMORANDUM
(Circulated by authority of the
Treasurer, the Hon Scott Morrison MP)
Table of contents
Glossary ................................................................................................. 1
General outline and financial impact....................................................... 3
Chapter 1 Foreign resident capital gains withholding
payments ...................................................................... 5
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
Commissioner Commissioner of Taxation
CGT capital gains tax
ITAA 1997 Income Tax Assessment Act 1997
TAA 1953 Taxation Administration Act 1953
1
General outline and financial impact
Foreign resident capital gains withholding payments
Schedule 1 to this Bill will amend the Taxation Administration Act 1953
(TAA 1953) to modify the foreign resident capital gains withholding
payments regime to:
• increase the withholding rate to 12.5 per cent; and
• reduce the withholding threshold to $750,000.
Date of effect: The measure will apply in relation to acquisitions of
property that occur on or after 1 July 2017.
Proposal announced: The measure was announced on 9 May 2017 as
part of the 2017-18 Budget.
Financial impact: The measure, together with the associated measures
relating to capital gains tax (CGT) changes for foreign investors that were
announced as part of the 2017-18 Budget, has these revenue implications:
2016-17 2017-18 2018-19 2019-20 2020-21
* 150.0m 100.0m 150.0m 170.0m
Note that the revenue gain over the forward estimates has been updated
since the 2017-18 Budget announcement to reflect a minor policy change
to the associated measure that will ensure only Australian tax residents
can access the main residence exemption.
Human rights implications: This Schedule does not raise any human
rights issue. See Statement of Compatibility with Human Rights --
paragraphs 1.20 to 1.23.
Compliance cost impact: This measure is expected to result in a medium
overall compliance cost impact, comprising a medium implementation
impact and a medium increase in on-going compliance costs.
3
Chapter 1
Foreign resident capital gains withholding
payments
Outline of chapter
1.1 Schedule 1 to this Bill will amend Schedule 1 to the TAA 1953
to modify the foreign resident capital gains withholding payments regime
to:
• increase the withholding rate to 12.5 per cent; and
• reduce the withholding threshold to $750,000.
1.2 All legislative references in this Chapter are to Schedule 1 of the
TAA 1953 unless otherwise specified.
Context of amendments
1.3 As part of the 2017-18 Budget, the Government announced a
range of reforms to reduce pressure on housing affordability. This
measure implements one of the reforms in the housing affordability
package to change the CGT outcomes for foreign investors.
1.4 This reform relates to the foreign resident capital gains
withholding payments regime. In this regard, Subdivision 14-D of
Schedule 1 to the TAA 1953 imposes a non-final withholding obligation
on the purchaser of certain Australian real property and related interests
where the property is acquired from a foreign resident vendor.
1.5 The foreign resident capital gains withholding payments regime
first came into effect on 1 July 2016 to:
• assist with the collection of CGT liabilities owed by foreign
residents; and
• address low levels of compliance by foreign residents with
their Australian tax obligations.
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Treasury Laws Amendment (Foreign Resident Capital Gains Withholding Payments) Bill 2017
1.6 Under the current taxation law, if a foreign resident capital gains
withholding payments obligation arises, the purchaser is required to pay
10 per cent of the first element of the cost base of the CGT asset to the
Commissioner. The first element of the cost base of the CGT asset is
usually the purchase price of the asset. This amount may be withheld from
the payment the purchaser makes to the vendor.
1.7 However, a foreign resident capital gains withholding payments
obligation does not arise in relation to a CGT asset if, so far as is relevant,
the market value of the CGT asset is less than $2 million and the
CGT asset is:
• taxable Australian real property; or
• an indirect taxable Australian real property interest, the
holding of which causes a company title interest to arise.
1.8 Changes to the foreign resident capital gains withholding
payments regime to increase the withholding rate and reduce the
withholding threshold will improve the integrity of the regime by
capturing more property transactions and encouraging greater compliance
with Australia's CGT rules.
1.9 Legislation to implement the other reforms in the housing
affordability package to change CGT outcomes for foreign investors will
be included in a later Bill. These reforms will:
• ensure that only Australian tax residents can access the
CGT main residence exemption (which is contained in
Subdivision 118-B of the Income Tax Assessment Act 1997
(ITAA 1997)); and
• for foreign residents with indirect interests in Australian real
property, apply the principal asset test (section 855-30 of the
ITAA 1997) on an associate inclusive basis for the purpose
of determining the market value of a taxable Australian real
property asset.
1.10 The package of reforms in the housing affordability package to
change CGT outcomes for foreign investors will ensure that foreign
investors meet their Australian tax obligations.
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Foreign resident capital gains withholding payments
Summary of new law
1.11 Schedule 1 to this Bill will amend Schedule 1 to the TAA 1953
to modify the foreign resident capital gains withholding payments regime
to:
• increase the withholding rate from 10 per cent to
12.5 per cent; and
• reduce the withholding threshold from $2 million to
$750,000.
Comparison of key features of new law and current law
New law Current law
Subdivision 14-D of Schedule 1 to Subdivision 14-D of Schedule 1 to
the TAA 1953 imposes a non-final the TAA 1953 imposes a non-final
withholding payments obligation on withholding payments obligation on
the purchaser of certain Australian the purchaser of certain Australian
real property and related interests real property and related interests
where the property is acquired from a where the property is acquired from a
foreign resident vendor. foreign resident vendor.
If a foreign resident capital gains If a foreign resident capital gains
withholding payments obligation withholding payments obligation
arises, the purchaser will be required arises, the purchaser is required to
to pay 12.5 per cent of the first pay 10 per cent of the first element of
element of the cost base of the CGT the cost base of the CGT asset to the
asset to the Commissioner. The first Commissioner. The first element of
element of the cost base of the CGT the cost base of the CGT asset is
asset is usually the purchase price of usually the purchase price of the
the asset. This amount may be asset. This amount may be withheld
withheld from the payment the from the payment the purchaser
purchaser makes to the vendor. makes to the vendor.
However, a foreign resident capital However, a foreign resident capital
gains withholding payments gains withholding payments
obligation will not arise in relation to obligation does not arise in relation to
a CGT asset if, so far as is relevant, a CGT asset if, so far as is relevant,
the market value of the CGT asset is the market value of the CGT asset is
less than $750,000 and the CGT asset less than $2 million and the CGT
is: asset is:
• taxable Australian real property; • taxable Australian real property;
or or
• an indirect taxable Australian real • an indirect taxable Australian real
property interest, the holding of property interest, the holding of
which causes a company title which causes a company title
interest to arise. interest to arise.
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Treasury Laws Amendment (Foreign Resident Capital Gains Withholding Payments) Bill 2017
Detailed explanation of new law
Increase the withholding rate
1.12 Currently, if a foreign resident capital gains withholding
payments obligation arises in relation to a CGT asset, the amount of
withholding is 10 per cent of the first element of the cost base of the
CGT asset. The first element of the cost base of the CGT asset is usually
the purchase price of the asset. This amount may be withheld from the
payment the purchaser makes to the vendor.
1.13 These amendments increase the rate of withholding to
12.5 per cent. [Schedule 1, items 1 and 2, paragraphs 14-200(3)(a) and 14-205(4)(a)]
1.14 Consequently, if a foreign resident capital gains withholding
payments obligation arises, the amount of withholding will be
12.5 per cent of, generally, the purchase price of the asset.
Reduction in the withholding threshold
1.15 Currently, a foreign resident capital gains withholding payments
obligation does not arise in relation to a CGT asset if, so far as is relevant,
the market value of the CGT asset is less than $2 million and the
CGT asset is:
• taxable Australian real property; or
• an indirect taxable Australian real property interest, the
holding of which causes a company title interest to arise.
1.16 These amendments reduce this $2 million threshold to $750,000.
[Schedule 1, item 3, paragraph 14-215(1)(a)]
1.17 Consequently, if the CGT asset is taxable Australian real
property or a relevant indirect taxable Australian real property interest, a
foreign resident capital gains withholding payments obligation will arise if
the market value of the CGT asset is $750,000 or more.
Application and transitional provisions
1.18 These amendments apply in relation to acquisitions of property
that occur on or after 1 July 2017. [Schedule 1, item 4]
1.19 A purchaser is generally taken to have acquired an asset on the
date they entered into the contract to acquire it (see Division 109 of the
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Foreign resident capital gains withholding payments
ITAA 1997). Therefore, these amendments will not apply to transfers that
occur under a contract entered into prior to 1 July 2017
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary
Scrutiny) Act 2011
Foreign resident capital gains tax withholding payments
1.20 This Schedule is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3
of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
1.21 Schedule 1 to this Bill will amend Schedule 1 to the TAA 1953
to modify the foreign resident capital gains withholding payments regime
to:
• increase the withholding rate to 12.5 per cent; and
• reduce the withholding threshold to $750,000.
Human rights implications
1.22 This Schedule does not engage any of the applicable rights or
freedoms.
Conclusion
1.23 This Schedule is compatible with human rights as it does not
raise any human rights issues.
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