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ATO’s timely tips on foreign resident capital gains withholding clearance certificates

The Australian Taxation Office (ATO) has provided some helpful suggestions to avoid delays in receiving clearance certificates for the foreign resident capital gains withholding obligations.

A vendor must provide a valid clearance certificate to the purchaser at or before settlement, otherwise the purchaser is required to withhold 12.5% of the purchase price at settlement and remit to the ATO.

The withholding obligation applies to taxable real property disposals with a market value of $750,000 or more, and to the disposal of certain other assets types including the sale of indirect Australian real property interests in Australian entities with a majority of assets in real property, and certain options or rights to acquire any of these asset types. (See Capital gains withholding: Impacts on foreign and Australian residents for more information.)

The ATO says its service standard for processing these applications is 28 days, and offers the follows tips to prevent delays to settlement:

  • Lodge applications for clearance certificates as early as possible – it is recommended that applications are lodged when a property goes up for sale, rather than waiting for a contract to be signed. Certificates are current for 12 months.
  • If you wait for a contract to be signed before getting the certificate, remember to include the additional 28 days processing to get the certificate in time for settlement. There are no guarantees applications for certificates will be processed before that timeframe.
  • Applications for non-individuals, such as companies, take longer to process, which means the ATO may need the full 28-day processing period. When applications need manual intervention, it can affect processing times.

If settlement is within 28 days and you haven’t received the clearance certificate and want the ATO to prioritise the application, the vendor needs to provide evidence before settlement that they will suffer financial hardship.

What to do if you don’t get a clearance certificate:

  • If vendors don’t have a valid clearance certificate at or before settlement, purchasers must withhold 12.5% of the purchase price and remit it to the ATO.
  • If it’s a new residential property that’s subject to GST at settlement, the purchaser must also withhold the GST amount and remit it to the ATO with Form two.

These two withholding obligations occur separately but operate together.

If you have any questions about the application process, phone the ATO on 13 28 66 Fast Key Code 4 2 within Australia or +61 26216 1111 outside Australia.

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