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Top Tax Tips – 28 February 2018

Reminder:  12.5% withholding tax may apply to properties sold this year

From 1 July 2017, all purchasers of certain types of Australian property (whether purchased from a resident or foreign resident vendor) must withhold 12.5% of the purchase price, unless:

  • the transaction is excluded from these rules (e.g. properties sold for less than $750,000); or
  • the parties undertake certain actions before settlement date (e.g. obtain an ATO clearance certificate, residency declaration or apply for a variation of the withholding rate).

Note, for the year 1 July 2016 to 30 June 2017, the CGT withholding rate was 10% and no withholding tax was payable on properties costing less than $2 million.

Please note that the application of this 12.5% withholding rule is not just limited to purchases but applies to all acquisitions (e.g. a transfer of relevant property through a gift, divorce proceedings or other distributions such as in specie property distributions from trusts or from deceased estates).

This effective 12.5% prepayment of the vendor’s CGT liability to the ATO will be allowed as a credit against the vendor’s tax liability when the vendor lodges their tax return.

Please let us know if you are thinking of buying real estate and know or suspect that the vendor is a foreign resident or has a foreign connection. Also, even if you are a resident vendor, we can help you to obtain an ATO clearance certificate or residency declaration so that the 12.5% withholding rule will not apply to you.

What is trust vesting?

Most Trusts have a cessation date called the vesting date.  In most Australian jurisdictions, trusts have an 80 year life unless the Trust Deed specifies an earlier date or the appointor or trustee of the Trust vests (shuts down) the Trust.

Once a Trust has vested, the trust relationship comes to an end (i.e. the beneficial interests in income and capital in the trust becomes fixed and determinable) – and this will lead to tax consequences.  For example, the CGT assets owned by the Trust are deemed to have been disposed of by the trustees to the beneficiaries on the vesting day – if the Trust’s CGT assets have increased in value since their acquisition, a taxable capital gain will arise.

Where the assets of the Trust were acquired before the commencement of CGT on 20 September 1985, the vesting of the Trust effectively causes those assets to become subject to CGT after the vesting.  This is because upon vesting, the assets previously owned by the Trust become assets of the Trust’s beneficiaries.  At this point, the assets should be market valued to establish their cost base.

A Trust’s vesting date cannot be extended by merely continuing to administer the trust in the same way as before the vesting date. Therefore, trustees of Trusts should be aware of when a trust may vest.  For this reason, trustees are advised to read the trust deed to ascertain the vesting date.

If you have a Trust whose vesting date has either expired or is approaching its expiry date, you should contact your Nexia adviser to assist you in analysing your options.

How can Nexia Edwards Marshall NT help you?

For any questions or to discuss any of the above in relation to your personal situation, please contact Sarah McEachern or your Nexia Edwards Marshall NT Adviser.

The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall NT. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall NT Adviser.

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