Foreign resident capital gains withholding changes: more than just another notification

What has changed?

Foreign resident capital gains withholding generally requires a purchaser to withhold 15% of the purchase price where certain assets are acquired from a foreign resident vendor.

Before 1 October 2026, a foreign vendor disposing of membership interests could provide the purchaser with a non-indirect Australian real property interest declaration, commonly referred to as a non-IARPI declaration. The declaration confirmed that the membership interests were not indirect Australian real property interests. Subject to the purchaser’s knowledge regarding the validity of the declaration, the purchaser could rely on the declaration and was not required to withhold.

From 1 October 2026, a foreign vendor must also notify the ATO where:

• the vendor provides, or intends to provide, the purchaser with a non-IARPI declaration; and
• the combined value of the assets of the vendor covered by the transaction and any related transactions is $50 million or more.

The related transactions rule is designed to capture arrangements that would ordinarily constitute a single transaction but have been divided into smaller transactions. The ATO’s guidance gives the examples of a sale undertaken in instalments or a transaction divided into multiple parcels of shares.

Importantly, the reforms can also apply to transactions entered into before 1 October 2026 where settlement occurs on or after that date.

Strict notification deadlines

Where the notification requirement applies, the vendor must lodge the approved form with the ATO, with the deadline dependent on the completion/settlement timeframe:

• Settlement or completion period greater than 31 days: the notification must be lodged with the ATO at least 28 days prior to settlement/completion; or
• Settlement or completion period less than 31 days: the notification must be lodged with the ATO as soon as practicable.

The vendor must also notify the purchaser in writing, before settlement, that the ATO has been notified and specify the date on which notification occurred. The ATO will issue an acknowledgement after receiving a valid notification, which may be used as evidence that the notification has been lodged.

If the required steps are not completed, the purchaser cannot rely on the non-IARPI declaration and may be required to withhold 15% from the purchase price. The notification requirements should therefore be addressed early in the transaction timetable rather than treated as a completion formality.

Increased scrutiny for purchasers

The changes are also relevant to transactions below the $50 million notification threshold.

A purchaser may only rely on a non-IARPI declaration if it does not know, and could not reasonably be expected to know, that the declaration is false. This test applies throughout the period beginning when the purchaser receives the declaration and ending immediately before it becomes the owner of the relevant asset.

Purchasers should therefore consider whether information obtained during due diligence, negotiations or the period before completion casts doubt on the declaration. The declaration should not be viewed as a document that can simply be accepted when first provided and then put aside.

The approved form may require substantial preparation

The ATO has published the approved Notice to the Commissioner of a non-indirect Australian real property interest vendor declaration form and accompanying instructions.

Although the notification requirement may appear straightforward, the approved form is relatively comprehensive. In addition to requiring vendors to explain the basis for the non-IARPI declaration, it calls for detailed valuation information relating to taxable Australian real property (TARP) and non-TARP assets, identification of the three largest non-TARP assets, and transaction data such as the original acquisition cost of the membership interests and the purchase price.

Completing the form may require a formal valuation to be undertaken and other supporting information that is not readily available at the outset of a transaction. Vendors should identify those requirements early, particularly where external valuation input may be needed. Failure to do so could place pressure on the completion timetable.

Penalties and transaction risk

The new regime can expose both vendors and purchasers to significant consequences.

1. Vendor: A vendor may be exposed to penalties if it makes a false or misleading statement to the ATO or the purchaser. For example, stating to a purchaser that the required notification has been made to the ATO when that statement is false.
2. Purchaser: A purchaser that incorrectly relies on a declaration may be liable for a failure to withhold penalty equal to the amount that should have been withheld, being 15% of the purchase price. The potential exposure can be substantial. By way of example, a transaction valued at $50 million could result in a withholding amount, and therefore a penalty, of $7.5 million.

These risks should be considered when drafting and negotiating transaction documents. Depending on the circumstances, parties may need to address:

• responsibility for preparing and lodging the notification;
• the evidence the vendor must provide before completion;
• whether notification is a condition precedent;
• the consequences of a late or defective notification;
• the purchaser’s right to withhold where it cannot rely on the declaration; and
• appropriate warranties, indemnities and other contractual protections.

What should transaction parties do now?

Foreign vendors and purchasers should consider the new requirements at the beginning of a transaction. In particular, parties should:

1. determine whether the transaction and any related transactions meet the $50 million threshold;
2. identify the information and valuation work required to support the declaration;
3. incorporate the notification deadline into the transaction timetable;
4. clearly allocate responsibility for notification and supporting evidence in the transaction documents; and
5. ensure that information obtained before completion is considered when assessing whether the purchaser can continue to rely on the declaration.

Early planning will be critical. What may appear to be an additional notification form can have broader consequences for due diligence, contractual risk allocation and the ability of a transaction to complete on schedule.