An ATO GST Clearance Certificate maybe required for a property transaction with a market value of $750k or more? Who needs to provide this and when?

Is a Clearance Certificate required?

All property transactions with a market value of $750,000 or more will need both the vendor and purchaser to consider whether they need a Clearance Certificate.

Where the capital gains tax (CGT) asset to which the transaction relates is taxable Australian real property or an indirect Australian real property company title interest, the entity is treated as a relevant foreign resident unless a clearance certificate is obtained from the ATO certifying that the entity is not a relevant foreign resident for the purposes of the relevant tax law.

This rule applies even if the vendor is actually an Australian resident for other income tax purposes.

What is a Clearance Certificate?

The ATO may issue a GST Clearance Certificate certificate (more generally called a Clearance Certificate) stating that the vendor of taxable Australian real property or an indirect Australian real property company title interest is not a relevant foreign resident.

The Clearance Certificate will specify that withholding is not required on the acquisition of the property.

A Clearance Certificate is valid for 12 months from the date issued, so the vendor may be able to use it for multiple disposals of real property or indirect Australian real property company title interests that occur within that period.

The vendor does not have to reapply for a Clearance Certificate each time they dispose of a property, as long as the clearance certificate is valid.

The Clearance Certificate may be provided to the purchaser at any time during the transaction, but must be provided to the purchaser by settlement.

The purchaser can rely on the Clearance Certificate as proof that they are not required to withhold 12.5% of the purchase price at Settlement and pay the funds to the ATO.

Once the purchaser has received a copy of the Clearance Certificate they have met their obligation, even if the vendor’s circumstances change during the settlement period.

What if the vendor fails to provide the Clearance Certificate on or before Settlement?

For the sale of all taxable Australian real property with a market value of $750k or more, the vendor is deemed a relevant foreign resident (even if they are in fact Australian) unless the buyer is furnished with a current Clearance Certificate on or before Settlement.

If the vendor fails to provide the required Clearance Certificate on or before Settlement, the buyer is required by law to deduct 12.5% from the purchase price and pay it to the ATO.

In such a situation, the vendor will face significant delays in receiving the full sale proceeds for the property.

How does a Vendor obtain a Clearance Certificate?

To obtain a clearance certificate, a vendor who is an Australian resident (or their representative) must complete an online Foreign resident capital gains withholding clearance certificate application form (NAT 74883).

To access the form, visit the ATO website page: Capital Gains Withholding Clearance Certificate Application online form and instructions for Australian Residents.

Conveyancers who are not legal practitioners or registered tax agents cannot complete the form on behalf of the vendor.

They can either provide the PDF version of the clearance certificate form (or URL hyperlink) to the vendor for them to complete.

If the Vendor is a foreign resident for tax purposes, the Vendor may be eligible to apply for a Variation Notice instead.

Credits:

The content for this FAQ was sourced from the ATO website page: Capital Gains Withholding Clearance Certificate Application online form and instructions for Australian Residents.

This FAQ was created by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Important Notice:

This FAQ is intended for general interest + information only.

It is not legal advice, nor should it be relied upon or used as such.

We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.