Private ruling: Excluded transactions under the foreign resident capital gains withholding regime
Date of advice: 3 May 2017
Published: September 2017
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the acquisition of the property pursuant to the contract an excluded transaction in accordance with subsection 14-215(1)(f) of Schedule 1 to the Taxation Administration Act 1953 (TAA)? | A1: Yes. | Q2: Does the purchaser have an obligation to pay the withholding amount to the Commissioner in accordance with subsection 14-100(1) of Schedule 1 to the TAA? | A2: No.

Relevant facts and circumstances: The purchaser entered into a contract for the sale and purchase of land after 1 July 2016 for a purchase price in excess of $X million. The vendor is a mortgagee exercising power of sale under a mortgage agreement. Immediately prior to completion of the contract the registered proprietor of the property was a company in liquidation. The contract was negotiated between the parties at full arm's length. By email a solicitor for the mortgagee: (a) asserted that the purchaser's acquisition of the property was an excluded transaction pursuant to section 14-215(1)(f) of Schedule 1 to the TAA; and (b) served on the purchaser an ASIC current and historical extract showing that a liquidator was appointed to the company and controllers were appointed. The contract was completed after 1 July 2016. At completion of the Contract, the withheld amount was paid to the trust account of the representing company pending a private ruling in relation to the purchaser's withholding obligations under Subdivision 14D of Schedule 1 to the TAA.

Relevant legislative provisions: Subdivision 14-D of Schedule 1 to the Taxation Administration Act 1953

Reasons for decision: Summary: Subdivision 14-D of Schedule 1 to the Taxation Administration Act 1953 (TAA) outlines the foreign resident capital gains withholding regime. From 1 July 2016, purchasers of certain Australian assets are obliged to withhold 10 per cent of the purchase price of the asset on settlement where they have purchased the property from a foreign resident, and to remit this amount to the Commissioner of Taxation (the Commissioner). Australian resident vendors can apply to the Commissioner for a clearance certificate indicating that the withholding is not required. Section 14-200(1) of Schedule 1 to the TAA provides that the withholding obligation under that section arises unless an acquisition under a transaction under section 14-200(1)(a) is excluded under section 14-215. Section 14-215 sets out the kinds of transactions that are excluded. These include where the vendor is a company subject to insolvency and external administration circumstances at the time of the transaction within the meaning of section 161A(1)(a) of the Corporations Act 2001 . Situations where a company is subject to insolvency and external administration circumstances within the meaning of section 161A(1)(a) of the Corporations Act 2001 include where: (a) the company is being wound up; (b) the company is under administration; (c) the company has executed a deed of company arrangement that has not yet been terminated; or (d) there is a managing controller or receiver of the property of the company. The reason for excluding insolvency and bankruptcy circumstances from foreign resident CGT withholding tax is to ensure that the tax does not upset the existing priority of creditors. | Detailed Reasoning - Application to your circumstances: The conditions in paragraph 161A(1)(a) of the Corporations Act 2001 are satisfied in relation to the at the time of the transaction because as at the date of exchange of the contact (and at completion of the contract): (a) a liquidator was appointed to the company; and (b) controllers were appointed to manage the property of the company. Therefore the purchaser's acquisition of the land pursuant to the contract is an excluded transaction.