Regardless of whether you are a foreign person or an Australian resident, the new withholding tax legislation ('tax legislation') may affect you if you are involved in a transaction relating to the sale or purchase of Australian real property, with a purchase price of more than $2 Million. 

There are also several other methods of the disposal of real property which can trigger the tax legislation including transferring/acquisition of leases, exercise of options, acquiring interest in Australian entities where real property or interests are the major assets.  These areas are not without their complexity and will not be canvassed in this article.

Subject to some exceptions (which will be detailed further below), if a contract is formed wherein real property being sold achieves a sale price of more than $2 Million, then either:

The payment of the withheld amount discharges the liability (including penalties and interest charges) which the Purchaser may have had in relation to the specific transaction under this legislation.

The Purchaser is not required to withhold any funds if the Vendor has complied with the obligation to provide a current clearance or variation certificate to the Purchaser prior to settlement.

If the Vendor fails to comply with the above requirement, they cannot refuse to settle on the basis of the Purchaser deducting withholding tax from the balance of the purchase price at settlement.

This legislation is new, and has not been used widely in practice.  It is also significantly complex, and each individual contract will turn on its own facts.

Reference: Affinity Lawyers