Australia's capital gains tax (CGT) regime will be overhauled following the introduction of two key legislative changes passed by Parliament.
Assistant Treasurer, Kelly O'Dwyer, yesterday announced the revisions as part of the 92 un-enacted tax and superannuation measures that the Government inherited from the Australia Labor Party.
She said the changes were expected to improve the integrity of Australia's foreign resident CGT regime, as well as help provide "certainty and clarity" for businesses entering into earnout arrangements.
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O'Dwyer said the changes will allow payments under the earnout arrangement to be treated as part of the original value of the business assets for CGT purposes instead of CGT applying to the earnout itself.
"Voluntary compliance by foreign residents is extremely low," she said.
"Compliance action is difficult once the transaction has been completed as the proceeds of sale may have been transferred overseas."
As part of Tax and Superannuation Laws Amendment (Measures No. 6) Bill 2015, the new measures are as follows:
- Amend the capital gains tax (CGT) treatment of earnouts; and
- Create a withholding obligation to improve compliance with Australia's foreign resident capital gains tax regime.
Under the new measures, from 1 July 2016 buyers will also be required to "withhold and remit" to the Australian Taxation Office 10 per cent of their payment when they purchase certain Australian real estate from a foreign resident.
O'Dwyer said the foreign resident capital gains tax changes are expected to generate revenue of $330 million over the forward estimates.