In brief - Many mortgagees selling land under a power of sale will no longer be required to apply for a variation of the foreign capital gains withholding amount after the issue of a legislative instrument by the Deputy Commissioner of Taxation
Broadly, the foreign capital gains withholding provisions require the buyer of land to withhold 12.5% of the purchase price and the pay the amount withheld to the ATO, unless an exemption applies.
There are exemptions which apply for many transactions involving sellers which are subject to formal bankruptcy or insolvency arrangements. These exemptions do not apply to a mortgagee exercising power of sale.
Before the issue of the legislative instrument, a mortgagee exercising power of sale had two options to avoid withholding by the buyer.
The first and rarely used option was to seek the co-operation of the owner of the land to apply for a clearance certificate from the ATO, as a clearance certificate can only be obtained by the owner. In most cases the owner would be unwilling to co-operate with the mortgagee.
The second option was for the mortgagee to apply to the ATO for a variation to the rate of withholding if the sale proceeds were insufficient to fully discharge the mortgage debt. The main issue with this option was potential delay to obtain the variation from the ATO.
Conditions under legislative instrument that the mortgagee exercising power of sale needs to meet
Under the legislative instrument, a mortgagee exercising power of sale is not required to apply for a variation of the foreign capital gains withholding amount if:
the mortgagee is an approved deposit-taking institution
the sales proceeds net of selling costs are insufficient to pay the mortgage debt in full, and
the mortgagee provides a written declaration to the buyer that the amount to withhold is varied to nil under the legislative instrument.
If the above conditions are satisfied, the buyer will not be required to withhold any amount from the purchase price.
The legislative instrument commenced on 10 October 2020 and can be viewed here: PAYG Withholding variation for foreign resident capital gains withholding payments – no residue after a mortgagee exercises a power of sale 2020.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2022.