Memo - If you’re selling a property worth over $750k you need to consider a Tax ClearanceCertificate

Well the official name of this is a “foreign resident capital gains withholding clearance certificate”. But this is not some fancy scheme affecting only foreign vendors – it applies to all vendors….basically you have to act to avoid the withholding tax applying to your transaction. If like me you don’t sell often this could catch you off guard.

Ie I’m putting a sale through next week and the solicitor rings me two days ago saying I need to get a tax clearance or else 12.5% will get withheld from my settlement proceeds and sent to the ATO. Whoa. That certainly got my attention. A bit more notice would be nice!
He sent me the ATO link and as it turns out its a fairly straightforward process to apply online and the clearance certificate got emailed to me within 48 hours (as I’m not a foreign resident) so all good.

But something to be mindful of. Wouldn’t want to leave this to the very last minute or the cashflow consequences could certainly be a bit ouchy!
Capital gains withholding: Impacts on foreign and Australian residents

 

Edit: don't worry, I'm an idiot

 

The clearence certificate is for sellers only. Are you confusing it with something else?

 

Sorry that's my bad. I read it totally wrong

 

Does this apply if I'm selling my PPOR, while i'm working overseas (and I am non resident for tax purposes) ?

 

It applies to ALL property sales over $750K that are residential and located in Australia.

Working overseas does not in itself make you a tax non-resident. You should check your tax residency as it affects oveseas earnings AND the CGT payable / withholding.

Two pathways

1. A tax resident
1A ....Apply for clearance cert and if it is issued then wht is not required at all.
1B. ...Apply for clearance cert and if it is refused tax must be withheld

2. A non-Resident
2A. Accept withholding tax and lodge a 2018 AU tax return to report final CGT event and claim credit for withholding
2B. Ignore issue and dont lodge. Accept withholding as fuill and final tax (but brea in mind it is NOT and a case for failure to lodge can arise)
2C. Apply for variation of withholding based on estimate of actual CGT likely payable. ATO will conisder this and may approve it. If you dont have a record of compliance with AU tax lodgements they will likely refuse to vary.

 

Thank you so much Sir, Great points to ask about with my accountant

 

Apologies but i forgot to ask, if I go with

"2C. Apply for variation of withholding based on estimate of actual CGT likely payable."

When should i do this. I read on the ATO website you can apply for Clearance certificates even before listing the property for sale and its valid for 12 months. But it does not state how long a variation notice is valid for? Should I apply for the variation just when I list to sell, or do you have to wait until the auction day and contracts signed before you can apply?

 

https://www.ato.gov.au/Forms/Foreig...ding-rate-variation-application-instructions/

You would make two applications. One prior to sale for clearance which can be a done well in advance of any (proposed) sale. Second after auction to declare the final cap gain and tax applicable. If Nil then WHT rate will be 0.00%. The ATO will assess this after lodgement of the form and issue both the creditor (buyer) and the vendor a letter authorising a varied rate. Without that letter the creditor (buyer) is liable for the shortfall of tax withheld.

Now here is where it gets hard. The process will be made as part of the settlement and generally be handled by a lawyer / conveyancer. However few lawyers can complete this form as it contains two tax agent services - One is to determine a tax liability and Second is completion and lodgement of a tax form.

So you can expect extra costs.

 

Ah I see, so you can only apply for the variation after the auction?

 

Yes. You wont know the buyer details or the final CGT calcs.

 

Awesome thanking you kindly