Foreign resident capital gains withholding – ATO advises of ‘clearance certificates' online and provides links to relevant forms – with a background on the detailed operation of the whole regime

New rules apply to vendors disposing of certain taxable Australian property under contracts entered into from 1 July 2016. A 10% non-final withholding will be applied to these transactions at settlement.

Australian resident vendors selling real property will need to obtain a clearance certificate from us prior to settlement, to ensure they don’t incur the 10% non-final withholding.

This new withholding legislation assists the collection of foreign residents’ Australian tax liabilities. It imposes an obligation on purchasers to withhold 10% of the purchase price and pay it to us, where a vendor enters into a contract on or after 1 July 2016 and disposes of certain asset types (or receives a lease premium for the grant of a lease over Australian real property).

The foreign resident vendor must lodge a tax return at the end of the financial year, declaring their Australian assessable income, including any capital gain from the disposal of the asset. A tax file number (TFN) is required to lodge a tax return; they will need to apply for a TFN if they don’t have one. The vendor may claim a credit for any withholding amount paid to us in their tax return.

Australian resident vendors can avoid the 10% withholding by providing one of the following to the purchaser prior to settlement

for Australian real property, a clearance certificate obtained from the ATO
for other asset types, a vendor declaration they are not a foreign resident.

Foreign resident vendors may apply for a variation of the withholding rate or make a declaration that a membership interest is not an indirect Australian real property interest and therefore not subject to withholding.
Purchasers must pay the amount withheld at settlement to the Commissioner of Taxation.

On 2 February 2017 (in an update of his initial December 2016 advice) the ATO advised that, to avoid possible delays in your settlement, we recommend you apply online for a clearance certificate at least 14 days before it is required.

If you are unable to use the online forms, then use these links to apply for a clearance certificate or variation for settlements:

If you cannot lodge through our online system, use the postal address to send us the Clearance certificate application via express post (to ensure it gets to the right team as quickly as possible).

For any urgent Clearance certificate requests, please use the following email address clearancecertificate@ato.gov.au. Note that emails are not unsecure channel and the TFN is not a compulsory field.

Variation requests can be emailed to FRWVariation@ato.gov.au.

Payments can be made by filling in the Purchaser payment notification and sending this to us, together with the cheque, to: Locked Bag 1936, Albury NSW 1936.

At this stage we request the fax numbers not be used. If our online system is not available, faxes could also fail due to the interrelationship between those systems.

[ATO website – CGT withholding] [Related Tax Technical Article] [Related Tax Month Articles; Feb ’16; Feb ’16; May ’16; Sept ’16; Oct ’16; Nov ’16] [LTN, 235, 5/12/16]

Foreign resident capital gains withholding – ATO advises of ‘clearance certificates’ online and provides links to relevant forms – with a background on the detailed operation of the whole regime

Author: John Morgan