The Australian Taxation Office (ATO) has just announced changes that affect non-resident property sellers and their representatives.
The first use of the Commissioner’s remedial power is designed to help non-resident property sellers. “The Commissioner of Taxation has limited powers to modify the operation of tax law in circumstances where entities will benefit, or at least be no worse off, as a result of the modification,” the ATO said.
The simplest and most common case where the modification will help property sellers is when a contract entered into in May or June settles in July or August of the same calendar year. This would give rise to a capital gain withholding requirement for the non-resident seller.
“In these cases, the current operation of the law can increase compliance costs for impacted sellers, as they will generally be required to lodge two separate Australian tax returns,” the ATO said. “The Commissioner of Taxation has modified this so non-resident property sellers now only need to lodge one tax return to account for their capital gains tax liability and claim the foreign resident capital gains withholding credit paid by the purchaser to the ATO.”
The Commissioner’s remedial power (CRP) is a “discretionary power”, meaning the Commissioner can use this power in limited circumstances where law changes would otherwise be required to address circumstances where laws are not operating as intended by Parliament. Hence, the CRP is to be used as a last resort where alternative options, such as administrative or interpretive approaches, are not adequate to resolve an issue.
The CRP may only be used to resolve general issues that arise for all entities, or issues that impact a distinct class of entities. “It cannot be used to resolve specific issues affecting a particular individual or entity,” the ATO said. “The CRP is not an alternative to objecting to a decision made by the Commissioner.”
The first use of the CRP took effect on October 27, 2017. “The modification ensures property sellers subject to foreign resident capital gains withholding are able to access withholding credits in a simpler and timelier manner when the sale process spans more than one financial year,” the ATO said.
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