Since Australia's budget in 2017/18, there has been continued focus on various transactions involving foreign investors. We have compiled some points foreign investors ought to know before investing in Australia.
Looking beyond the Foreign Investment Review Board (FIRB) Approval before you invest
Australia is now applying a "national interest test" to introduce a number of new conditions that aim to ensure foreign investors are complying with Australian taxation regulations, have settled any outstanding debts in Australia, and also are taking the responsibility of notifying the Australian Taxation Office (ATO) of any material transaction through annual reporting measures that continually are becoming more onerous. These measures can also include transfer pricing compliance or adhering to new anti-avoidance legislation.
Withholding Tax on Capital Gains
Foreign residents selling Australian real property are assessed under the foreign resident capital gains withholding (FRCGW) regime on contracts signed on or after 1 July 2017. Under the updated rules:
the FRCGW will apply at 12.5% (up from 10%),
the real property disposals of a contract value of AUD 750,000 and above (reduced threshold from the previous AUD 2,000,000)
For transactions that are caught under the rules, the purchaser is required to withhold the FRCGW from the purchase price and remit this directly to the Australian Taxation Office.
GST on Transactions involving Real Property
Australia's goods and services tax (GST) laws require purchasers of newly constructed residential properties and new subdivisions to remit the GST directly to the ATO as part of the settlement.
This measure was initially introduced as a response to concerns that some property developers would fail to remit the GST on their sales to the ATO after having claimed input GST credits throughout the construction and development phases.
While this measure takes effect on contracts executed since 1 July 2018, the transitional measures allowed a grace on contracts signed prior to this date provided their settlement occurs before 1 July 2020.
Whether investments involve a direct ownership or acquiring interests through certain vehicles, there is a need to revisit all tax modelling in order to re-evaluate the tax assumptions in any investment portfolio involving real property in Australia.
Contact us to find out more.