ATO Variation Certificate when selling as a non-resident

It's been discussed in other threads on this forum how there is pending legislation that will mean that full CGT from the date of purchase will be liable on a PPOR if the vendor is a non-resident and the settlement date is after 30/6/2019.

As there is still uncertainty if this legislation will get passed by the Senate before the next election I am preparing a plan B which is to sell our PPOR before 30/6/2019. I don't really want to do this, but the CGT liability is just too great to ignore should our circumstances force the sale before returning to Australia.

As non-residents we are unable to get a clearance certificate, so we should apply for a variation to the 12.5% witholding amount instead. We have been in and out a few times in our 21 years of ownership, however it should be the case that the 6 years rule will cover our periods of absence, in which case the variation should be down to 0%.

Now the questions:

Can you apply before even listing the property for sale? The variation certificate would then serve the purpose of clarifying the CGT position in advance of any sale, and that the 6 year rule applies.

How long is the certificate valid for? I would think that it should be valid until 30/6/2019 or when the current 6 year period ends (late 2020), depending if the new legislation becomes law or not.

How long does it take to get? The ATO web site says 28 days, but I wouldn't want a sale to be held up if there is some delay.

What happens if you decide not to sell and have the certificate? I would think nothing, the certificate would just expire and you have to get another one when you do try to sell again.

Any other experiences with variation certificates?

Thanks in advance!

 

Non-resident taxpayers cannot vary the withholding and cannot apply for a certificate. That element of tax law is already passed. The changes you refer to affect how the taxable gain would be determined - after June 2019. Whether the proposed law is passed or not, a sale prior to then may avoid the change.

Non-resident withholding is not a taxpayer calculated matter and cant be varied. The withholding is a fixed 12.5%.of the contract price where the contract threshold is met. Only a resident taxpayer (with tax lodgement compliance) can seek to apply for the exemption concession. A property with $0 CGT can also still have withholding but may be varied in some instances. The lodgement of a final return to include and claim the exempt gain would then see the tax refunded. Of course greater scrutiny by the ATO for a 100% exemption can be expected.

Foreign resident capital gains withholding payments

Applying for the variation after sale is likely but can be done prior to sale. Online would process faster:

Foreign resident capital gains withholding rate variation application online form and instructions

In instances where a person has been offshore a while the ATO are likely to give greater focus to 6 year absence periods especially if used successively. The ATO have very good systems to determine peoples travel dates and can also easily check other data.

They say 28 days for everything.

 

Hi Paul, thanks for your response. However the ATO specifically says that non-residents can apply for a variation under the current law:

Capital gains withholding: Impacts on foreign and Australian residents

Vendors can apply for a variation where:

• they're not entitled to a clearance certificate
• a vendor’s declaration is not appropriate
• 12.5% withholding is too high compared to the actual Australian tax liability on the sale of the asset.

Reasons for a variation include:

• the vendor will not make a capital gain on the transaction (for example, because they will make a capital loss or a CGT roll-over applies)
• the vendor will not have an income tax liability (for example, because of carried-forward capital losses or tax losses)
• a creditor of the vendor has a mortgage or other security interest over the property, and the proceeds of sale available at settlement are insufficient to cover both the amount to be withheld and to discharge the debt the property secures
• a creditor acquires legal title to the property (that is, becomes the purchaser) as a result of an order for foreclosure, and its security would be further diminished as a result of having to comply with the withholding obligation.

Foreign residents claiming the main residence exemption as a reason for the variation

Foreign residents may no longer be able to claim the CGT main residence exemption as the reason for their variation.


The government has announced that the main residence exemption will not be available to foreign resident vendors in the following circumstances:

• For property held before 7:30pm (AEST) on 9 May 2017, the exemption will only be able to be claimed for disposals that happen up until 30 June 2019 and only if they meet the requirements for the exemption.For disposals that happen from 1 July 2019 they will no longer be entitled to the exemption
• For property acquired at or after 7:30pm (AEST) 9 May 2017, the exemption will no longer apply to disposals from that date.

If the law is passed, this change will only apply if the person is not an Australian resident at the time of the disposal (the contract date). Their residency status in earlier income years will not be relevant. There will be no partial main residence exemption available in these circumstances.


If a person has always been a foreign resident it is unlikely they have ever resided in the property as their main residence and are unlikely to meet the current requirements for the exemption.

What I'm looking for is real experiences with doing this, how long did it take and what was the result.

 

I dont know if you read my post. It mentions variation. A person without a clearance certificate faces 12.5% or must vary. Variation is optional and the 12.5% is the default if they dont act. eg a resident or non resident who doesnt bother to follow the clearance process or who fails the approval. The area where I see problems is taxpayers who arent current in the tax system. They cant skip the process just because they are old and retired or never worked. They need to act early to ensure the have a valid TFN etc.

And I would definitely do the online process v's PDF. PDF processing is always slower. The issue with the planned CGT changes will have uncertainty and could also impact a variation request, only if the sale is proposed for 1 July 2019+. If a sale is dated prior to then the existing law is effective up to then.

The current system is a bit clunky but seems to work at a satisfactory level. I would also be interested in learning from your experience esp regards the uncertain changes and the ATO approach to that. The ATO are bound to consider proposed law but cant enforce a law that isnt yet law. I imagine they may issue a letter with a variation that cautions the proposed law change.

I would get the variation request in early (tip : when the sale contracts are being drawn up so the contract reflects compliance) so if any hickups with the proposed law change impact you have time to address any requests for more information without affecting marketing. I would expect the ATO will do some checking for claims of high exemptions %'s when travel records and dates may be inconsistent with that. But may well be simple. eg a person departed three years ago. 6 year exemption applies. Sale prior to 1 July proposed. 0% withholding. Approved