The information on the ATO website, on Capital gains withholding clearance certificate application online form and instructions – for Australian residents, has been updated by the ATO. It notes that, if a corporate trustee does not have a TFN, an attachment can be included to provide the details of the relevant trust.
The updated page, on the ATO’s site, relates to the Foreign Resident CGT Withholding Tax System, implemented under theTax and Superannuation Laws Amendment (2015 Measures No. 6) Act 2016 (and see the 2015 Bill by the same name).
- The regime commenced on 1 July 2016 and was amended, with effect from 1 July 2017.
- Despite being called a ‘foreign resident’ withholding system, obligations are thrust on all vendors (which I’ll come to). The end result, however, is that the actual withholding, will only apply on sales, by foreign residents.
- The regime applies to the sale of certain direct and indirect interests in Australian real property. Respectively, these are Taxable Australian Real Property or TARP (under s855-20 of the ITAA97) and shares in companies (and the like) where TARP is more than half of the company’s assets, or the underlying assets of companies in which it holds shares (that is membership interests in entities that pass the TARP ‘significant asset’ test in s855-25).
- There are various exclusions from the relevant class of assets, the most important of which is assets with a market value of less than $750k (which used to be a $2m threshold).
- Under the regime, the purchaser must withhold 12.5% of the purchase price (originally 10%), and to remit it to the Commissioner, on account of any CGT that the foreign vendor may incur on the sale of that asset. This is, of course, to ensure that the Commissioner can collect the Australian CGT from the non-resident vendor.
- To avoid the purchaser having to withhold, the vendor must give them either a ‘clearance certificate’ or a ‘declaration’.
- ‘Clearance certificates’ are issued by the ATO and give purchasers certainty that they don’t have to withhold (either because the the vendor is resident in Australia or the shares (etc.) are not relevantly ‘land rich’). This type of ‘clearance’ is mandatory for direct interests in Australian real property.
- For indirect interests in Australian real property, a ‘declaration’ by the vendor will suffice – either that they are resident, or that the shares (etc.) are not relevantly ‘land rich’.
- *The regime is not limited to ‘sales’ but in fact applies to many types of CGT events.
This brings me back to the particular update to the Commissioner’s web page on ‘clearance certificates’. For trusts and superannuation funds, the trustee should apply for the Certificate, if the trustee has legal title to the asset. The Commissioner says that that the trustee should apply, but in its own capacity (as either a company or an individual). It should apply using its own TFN or ABN as the identifier (not the Trust’s). The ATO recommends including the Australian company number (ACN) as an attachment (if they have one). And, the ATO notes that, if a corporate trustee does not have a TFN, it should include an attachment, in the application, which provides the details of the relevant trust.
Study questions (answers available)
- Is the news item, that the Commissioner has updated his web page, about applying for ‘clearance certificates’, under the Foreign Resident CGT Withholding Tax System?
- Does the update relate to trustees, who hold legal title, applying for the certificate in their own capacity (and not in their trust capacity)?
- Did this withholding regime commence on 1 July 2017?
- Is it only ‘foreign residents’ who have obligations under this regime?
- Can a purchaser be sure they don’t have to ‘withhold’ if the vendor gives them a ‘clearance certificate’ issues by the ATO?