Property Settlement Risks

New 10% withholding tax affecting transfers of real property interests will impact on family lawyers

From 1 July 2016 it is presumed that the vendor of real property is a non-resident and the purchaser will be obliged to withhold 10% of the proceeds, register for withholding tax (WHT) and pay it to the Australian Taxation Office (ATO)unless a Clearance Certificate has been obtained prior to settlement.

The Tax and Superannuation Laws Amendment (2015 Measures No.6) Bill 2015 received Royal Assent on 25 February 2016. Effective 1 July 2016 the legislation introduces a new foreign capital gains withholding tax regime which is designed to assist the Australian Taxation Office (ATO) in the collection of foreign investors’ Australian tax liabilities arising from the sale of real property.

The scope of the new legislation goes beyond the sale of direct interests in real property and it appears that the effect of these provisions may have unintended consequences. Caution will be required when drafting Family Law Act Orders and financial agreements that directly or indirectly affect interests in real property.

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Prepared for the Family Law Section of the Law Council of Australia.