When selling TARP, in order to avoid (or reduce) an amount of foreign resident CGT withholding, a seller is generally required to provide one of the following to a buyer:
a clearance certificate;
other evidence that a specific exclusion (in S.14-215 of Schedule 1) applies; or
a valid variation notice.
In the absence of all of the above, a buyer is generally required to withhold 12.5% of the purchase price (for a property valued at $750,000 or more) at settlement.
Clearance certificates
A clearance certificate is a document issued by the ATO that provides certainty to a buyer of TARP (and certain other taxable Australian property) regarding their withholding obligations. The clearance certificate effectively confirms that the ATO accepts the seller to be an Australian resident and that foreign resident CGT withholding does not apply to the transaction.
As a general rule, an Australian resident seller (or their representative) applies for a clearance certificate by completing an online ‘Clearance certificate application for Australian residents’ form. Where there are multiple sellers disposing of a single asset, each seller applies for a separate clearance certificate in their name only. Once the clearance certificate has been issued by the ATO, it is then provided to the buyer. Refer to S.14-210(2) and S.14-220 of Schedule 1.
TAX WARNING – Seller’s responsibility to provide certificate on time
A clearance certificate is only effective in relieving a buyer from their withholding obligations when it is provided to them by the seller before payment of the withholding tax is required (i.e., generally at settlement). Refer to S.14-210(2) of Schedule 1.
It is the seller’s responsibility to obtain a clearance certificate and provide it to the buyer on time. The ATO recommends that sellers seeking a clearance certificate should apply online as early as practical in the sale process (and at least 28 days before settlement, or possibly earlier for high risk or unusual cases). Refer to ‘Clearance certificates’ in the ATO’s factsheet (QC 48972).
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