Foreign resident capital gains withholding – part 7
The knowledge condition is only relevant to purchases of indirect Australian real property interests (other than company title interests) and options and rights to acquire taxable Australian real property or indirect Australian real property interests.
The knowledge condition will be satisfied where the purchaser either:
- knows or has reasonable grounds to believe the vendor is a foreign resident
- does not reasonably believe the vendor is an Australian resident and either
- has a record about the acquisition indicating the vendor has an address outside Australia
- is authorised to provide a financial benefit (for example, make a payment) to a place outside Australia (whether to the vendor or to anybody else).
Evidence for the knowledge condition
A purchaser in applying the knowledge condition must rely upon that information that it is aware of or has access to in making the decision. In some circumstances this will only be the share registry of the target entity whose interests are being acquired by the purchaser.
It would be expected that the purchaser would rely upon the share registry no earlier than as at the date of the offer acceptance. Reliance from this date reduces the possibility that changes in the vendors circumstances would occur up to the date of the transaction so as to change the purchaser’s belief about the vendor had they known of it before taking ownership of the interest in the target.
Purchasers who are not comfortable determining whether the knowledge condition is satisfied, may seek a vendor declaration confirming the vendor is not a relevant foreign resident.
Failure by the vendor to provide the declaration in these circumstances can be taken by the purchaser as confirmation that the vendor is a relevant foreign resident.
A clearance certificate provides certainty to purchasers regarding their withholding obligations. It confirms the withholding tax is not applicable to the transaction.
The purchaser must withhold 12.5% of the purchase price in transactions involving taxable Australian real property, or an indirect Australian real property interest that provides company title interests, with a market value of $750,000 or more, unless the vendor shows the purchaser a clearance certificate from us.
The ATO process applications in order of date of receipt. To avoid possible delays in your settlement, apply online for a clearance certificate at least 28 days before you require it.
It is the vendor’s responsibility to obtain the clearance certificate and provide it to the purchaser at or before settlement. To avoid unanticipated delays, and to ensure the certificate is valid at the time it is given to the purchaser, vendors seeking a clearance certificate should apply through the online form as early as practical in the sale process.
Without being presented with a valid clearance certificate, the purchaser will be required to remit 12.5% of the purchase price to us if no other exclusions apply.