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  • Vendor

    The vendor is the entity that holds the legal title to the asset this withholding applies to.

    Where the asset is held on behalf of another entity, the vendor is the legal owner of the asset, for example, the trustee or custodian who holds the legal title on behalf of beneficiaries.

    When the vendor is treated as a foreign resident

    A vendor is treated as a foreign resident if:

    • the vendor doesn't provide the purchaser with either a valid                  
      • clearance certificate by settlement, if they are disposing of an asset that requires a clearance certificate to be provided to avoid the withholding being imposed
      • vendor declaration stating they are an Australian resident, or that the membership interest is not an indirect Australian real property interest, when asked to do so by the purchaser with respect to a transaction involving an asset for which a vendor declaration can be used to avoid the withholding being imposed
    • the purchaser applies the 'knowledge condition'.

    Knowledge condition

    The knowledge condition is only relevant to purchases of indirect Australian real property interests (other than company title interests) and options and rights to acquire taxable Australian real property or indirect Australian real property interests.

    The knowledge condition will be satisfied where the purchaser either:

    • knows or has reasonable grounds to believe the vendor is a foreign resident
    • does not reasonably believe the vendor is an Australian resident and either                      
      • has a record about the acquisition indicating the vendor has an address outside Australia
      • is authorised to provide a financial benefit (for example, make a payment) to a place outside Australia (whether to the vendor or to anybody else).

    Evidence for the knowledge condition

    A purchaser in applying the knowledge condition must rely upon that information that it is aware of or has access to in making the decision. In some circumstances this will only be the share registry of the target entity whose interests are being acquired by the purchaser.

    It would be expected that the purchaser would rely upon the share registry no earlier than as at the date of the offer acceptance. Reliance from this date reduces the possibility that changes in the vendors circumstances would occur up to the date of the transaction so as to change the purchaser’s belief about the vendor had they known of it before taking ownership of the interest in the target.

    Purchasers who are not comfortable determining whether the knowledge condition is satisfied, may seek a vendor declaration confirming the vendor is not a relevant foreign resident.

    Failure by the vendor to provide the declaration in these circumstances can be taken by the purchaser as confirmation that the vendor is a relevant foreign resident.

      Last modified: 01 Mar 2021QC 48972