The Tax and Superannuation Laws Amendment (2015 Measures No 6) Bill 2015 is now law (just awaiting Royal Assent).
But we now need to understand that from 1 July 2016 a purchaser of certain CGT assets, being asset valued at $2 million or more that are taxable Australian real property or an indirect interest in Australian real property, will need to withhold 10% of the purchase price and remit it to the Commissioner if the seller does not provide a “clearance certificate” from the Commissioner.
I should also acknowledge this withholding does not apply to transactions listed on an approved stock exchange or whether the foreign resident vendor is under external administration or in bankruptcy.
A resident vendor…
A vendor goes to http://www.ato.gov.au/FRCGW (should be up and running before 30 June 2016) and submits an online application called the clearance certificate application.
Once the application for a clearance certificate is lodged there will be an automated process for the issue, or rejection, of a clearance certificate. Where the Commissioner has all the required information to assess if the vendor is a resident, it is expected that clearance certificates will be provided within days of being submitted.
However, where there are data irregularities or exceptions, the clearance certificates will be provided within 14 to 28 days. In addition, the Commissioner states that higher risk and unusual cases may take longer than 28 days.
This clearance certificate can be applied for before the property is listed for sale and the clearance certificate will be valid for 12 months.
A non resident vendor making a small or no capital gain (exempt asset) or making a capital loss
This is where the second form at www.ato.gov.au/FRCGW (should be up and running before 30 June 2016), called the variation application, comes into play.
Where the vendor is not entitled to a clearance certificate because they are a non-resident, but they believe a withholding of 10% is inappropriate, the vendor can apply for a variation.
The vendor completes this on-line form requesting a lesser withholding rate be determined by the Commissioner. The Commissioner may then issue a notice of variation and this should be provided to the purchaser before settlement to ensure the reduced withholding rate applies.
Every seller of assets greater than $2 million
If you are provided with a clearance certificate by settlement – nothing changes.
If you are not – withhold 10% of the amount and only pay the vendor 90%. Where an amount is withheld, the purchaser is required to complete an online form, called the Purchaser payment notification, to provide details of the vendor, purchaser and the asset being acquired. Again this can be found at at www.ato.gov.au/FRCGW (should be up and running before 30 June 2016). The purchaser will then receive a payment reference number, with various methods to make the payment of the withheld amount.
AND NOW THE BAD NEWS – WHAT IF A SELLER FORGETS TO GET A CLEARANCE CERTIFICATE AND FORGETS TO WITHHOLD 10%?
The penalty for failing to withhold is equal to the amount that was required to be withheld and paid. So make sure the contracts require the vendor to provide a clearance certificate or agree that the amount to be paid to them is only 90% of the contract price.
Not a final withholding…
Remember, this withholding is not a final withholding tax, so the seller will still need to include any capital gain in their tax return and claim a credit for the amount withheld.