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Foreign Resident CGT Withholding Tax – Deceased Estates
We recently advised of the introduction of the foreign resident CGT withholding tax regime that came into effect on 1 July 2016 under changes to the Taxation Administration Act 1953 (Cth) (see full article here). By way of brief summary, purchasers are required to withhold from the market value (where such market value exceeds $2 million) of certain assets – most notably taxable Australian real property and interests of 10% or more in an entity whose assets are comprised of more than 50% of taxable Australian real property (Relevant Asset) – the amount of 10% of that value when a CGT event happens to the Relevant Asset, and remit this amount to the Australian Taxation Office (ATO). In a sale transaction the purchaser’s withholding obligation is exempted in circumstances where, inter alia, a clearance certificate is obtained from the ATO or (for certain types of asset) the vendor provides a declaration that they are not a foreign resident, or a variation is granted by the ATO by no later than the time of transfer.
Significantly, however, the regime does not apply only to sale transactions but also upon the happening of other CGT events. When the regime was introduced concern was expressed as to the impact on the transfer of assets following the death of an asset holder. This concern centred on the imposition on legal personal representatives (LPRs), beneficiaries and joint tenants of the obligation to withhold and remit to the ATO 10% of the market value of the Relevant Asset when that property was transferred into the recipient’s control.
The ATO has now clarified this position by release of PAYG Withholding Variation 48, pursuant to which no withholding or remittance to the ATO is required when, as a result of the death of an individual:
- the LPR is taken to have acquired the Relevant Asset following the death of the deceased;
- a beneficiary obtains ownership of the Relevant Asset by way of direct transfer from the deceased or by transfer from the LPR;
- a surviving joint tenant acquires the deceased joint tenant’s interest in the Relevant Asset.
The variation provides examples of how the timing of a CGT liability being triggered by the death of a Relevant Asset holder leads to impractical outcomes, particularly with respect to the inability of the recipient to obtain a valid clearance certificate, vendor declaration or variation from the ATO.
Coming into effect on 7 September 2016, the variation is welcome relief to LPR’s, beneficiaries and surviving joint tenants who now have official acknowledgement that they need not comply with an additional taxation formality at what is already a difficult and often distressing time.Clayton Hellen