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  • Clearance certificates

    The ATO will close its normal operations from close of business Friday 21 December 2018, with business resuming on the first working day after New Year’s Day 2019. No clearance certificates will be processed during this period. If you require a certificate for settlement during that period, please lodge your application at least 28 days before 21 December 2018.

    A clearance certificate provides certainty to purchasers regarding their withholding obligations. It confirms the withholding tax is not applicable to the transaction.

    The purchaser must withhold 12.5% of the purchase price in transactions involving taxable Australian real property, or an indirect Australian real property interest that provides company title interests, with a market value of $750,000 or more, unless the vendor shows the purchaser a clearance certificate from us.

    We process applications in order of date of receipt. To avoid possible delays in your settlement, apply online for a clearance certificate at least 28 days before you require it.

    Find out about:

    It is the vendor’s responsibility to obtain the clearance certificate and provide it to the purchaser at or before settlement. To avoid unanticipated delays, and to ensure the certificate is valid at the time it is given to the purchaser, vendors seeking a clearance certificate should apply through the online form as early as practical in the sale process.

    Without being presented with a valid clearance certificate, the purchaser will be required to remit 12.5% of the purchase price to us if no other exclusions apply.

    How to apply

    The Australian resident entity (or their representative) will need to complete an online Clearance certificate application for Australian residentsThis link opens in a new window.

    Where there are multiple Australian resident vendors disposing of the asset, each vendor should apply for a separate clearance certificate in their name only.

    Australian residents not required to lodge tax returns, such as aged pensioners, are still required to obtain a clearance certificate.

    If you are a foreign resident there is no point in you lodging an application. However if you may be entitled to a variation to the withholding rate, then you can lodge a variation request.

    If you can't access the webpage phone us on:

    • 13 28 66 (Fast Key Code 4, 2) within Australia
    • +61 2 6216 1111 outside Australia to obtain details of what you need to provide.

    Where a valid clearance certificate is provided, the purchaser is not required to withhold an amount from the purchase price for the vendor listed in the clearance certificate.

    If an Australian tax resident vendor has had withholding taken from their sale proceeds, for example because they didn't provide the purchaser with a clearance certificate, they will be able to claim a credit for that amount when they lodge their tax return. This credit may be refunded if they don't have to pay capital gains tax on the sale of the property (for example, because it was their main residence).

    Only an Australian resident entity* can obtain a clearance certificate. Solicitors, tax agents or other representatives of the vendor can apply on the vendor’s behalf.

    Conveyancers, real estate agents and others charging a fee for services (but who are not legal practitioners or registered tax agents) should obtain a completed paper PDF version of the clearance certificate form from the vendor. They can then use the details on the paper form to complete the online form, ensuring faster processing, as part of the settlement process.

    Next step:

    See also:

    *An Australian resident entity is one that is an Australian resident for tax purposes. This isn't the same as the definition of residency for immigration purposes, or for the Foreign Investment Review Board (FIRB) applications to buy Australian property.

    A clearance certificate only applies to the entity specified on the certificate. If an asset has multiple vendors, each vendor will need to show the purchaser a clearance certificate to ensure amounts are not withheld.

    It's valid for 12 months from the date issued, so the vendor may be able to use it for multiple disposals of real property that occur within the 12 month period. The vendor doesn't have to reapply to us each time they dispose of a property.

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

    When to obtain a clearance certificate

    An entity may apply for a clearance certificate at any time they are considering the disposal of taxable Australian real property. This can be before the property is listed for sale.

    You should apply for a clearance certificate online at least 28 days before you require it.

    How long it takes

    We issue clearance certificates within 28 days of receiving the application.

    Higher risk and unusual cases may also require greater manual intervention, which could take longer.

    If you lodge your application close to the settlement date, we cannot guarantee we can process it by the settlement date as we will not disadvantage those other applicants who applied earlier by delaying their application to process yours.

    Where we send the certificate

    Clearance certificates will be sent by email if an email address is provided in the application. Care should be taken to ensure that the email address supplied is current and correct to ensure a quick response. Otherwise clearance certificates will be mailed to the vendor and the vendor’s contact using the addresses provided in the application.

    To avoid unanticipated delays, vendors seeking a clearance certificate should apply through the online system as early as practical in the sale process.

    Valid clearance certificate

    A clearance certificate is valid for 12 months from the date of issue. It's only valid for the listed vendor and clearance certificate period on the certificate.

    As long as the clearance certificate is provided by the vendor to the purchaser during the time specified on it, and that this is before settlement occurs, then it does not matter how long into the future the settlement may be. The purchaser does not have to withhold.

    All parties on the Certificate of Title will require a clearance certificate. For example, joint tenants / tenants in common will need to fill out a form each. It is the vendor’s responsibility to provide the purchaser with the clearance certificate and ensure it's valid.

    What name should be on the clearance certificate

    Vendors must ensure the details on their clearance certificate application are accurate, so the clearance certificate issues in the correct name as that shown on the Certificate of Title of the property.

    For the purchaser to rely on the clearance certificate, we require the following three conditions be met:

    • The name of the vendor on the certificate must match the name on the certificate of title – see Trusts and superannuation funds for further clarification
    • the date the certificate is given to the purchaser must be a date that falls within the time period shown on the clearance certificate
    • the clearance certificate must be provided to the purchaser before settlement.

    We will issue a clearance certificate in the name that is in our system. This may mean the name of the vendor on the clearance certificate doesn't match the name of the vendor on the certificate of title. In these cases:

    • we accept the purchaser has fulfilled their obligation if the vendor supplies the purchaser clearance certificate and proof of a name change (for example, a marriage certificate issued from an Australian state or territory registry)
    • we accept that purchasers have fulfilled their obligation if they have sighted a certificate where the First Name, Initial and Last Name or First Name and Last Name are consistent with the name on the title
    • an honorific match is not required
    • a correct address on a certificate is not required to fulfil the purchaser's obligations
    • it is not necessary to have the instrument number to a title deed on the clearance certificate – for example 'Trustee under instrument ###'
    • it is not necessary to have the details of the trust on the clearance certificate – for example 'as Trustee for the XYZ Trust'. See Trusts and superannuation funds for further clarification
    • it is not necessary to have 'as executor for' or 'as legal representative for' on a clearance certificate to fulfil the purchasers obligations (where purchasing from a deceased estate). See Deceased estates for further clarification.

    Note: We will not reissue certificates in the above instances.

    When a purchaser receives a clearance certificate from a vendor that is valid, they can rely on it and not withhold. There is no need for the purchaser to question the residency of the vendor.

    If the clearance certificate doesn't meet the above conditions, the purchaser is required to withhold 12.5% of the purchase price.

    Although it's not necessary for the purchaser to check the validity of clearance certificates with us before deciding to withhold the 12.5% amount from the purchase price, they could decide to do so.

    You can phone us on 13 28 66 (Fast Key Code 4, 2) to check if the clearance certificate is valid. You'll need to provide the following information:

    • BET number (transaction ID) from the Our reference field at the top of the certificate
    • the vendor’s name as it appears on the clearance certificate.

    The call centre operative will then inform you whether the clearance certificate is valid.

    Trusts and superannuation funds

    The instructions for the capital gains withholding clearance certificate application provide specific details about how the form should be completed.

    For trusts and superannuation funds, it is the entity that has legal title to the asset that applies for the clearance certificate. In most cases this is the trustee. It is the trustee – in their own capacity as either a company or an individual – that should apply for the clearance certificate.

    The trustee needs to use their own tax file number (TFN) and/or Australian business number (ABN) as the identifier (if they have one). It is recommended to include the Australian Company Number (ACN) as an attachment if they have one.

    Note: If a corporate trustee does not have a TFN, include an attachment in the application which provides the details of the relevant trust.

    The certificate will be issued in the name as it appears on our system. We accept the purchaser has fulfilled their obligation if the vendor can show that the entity on the clearance certificate is the trustee of the trust (for example, copy of the trust deed).

    This may be needed where our system contains 'The trustee for ABC Trust' whereas the title contains 'XYZ as the trustee for ABC Trust', or it has the trustee name only on the clearance certificate.

    Consolidated groups and multiple entry groups

    Withholding and intra-group transactions

    A member of a consolidated group or multiple entry groups that purchases from another member of the group an asset to which the withholding applies is still required to comply with the withholding obligation.

    Entity obtaining the clearance certificate

    We'll issue a clearance certificate to the head company or provisional head company of the group which includes the members of the group as an attachment.

    We rely upon the group membership information as recorded on our systems. If group membership has changed, it's up to the head company to notify us of these changes before making a clearance certificate request.

    Alternatively, subsidiary entities can, in their own right, apply for a clearance certificate and have one issued in their own name.

    The contract is for longer than 12 months

    There may be instances where the settlement date is after the expiry date on the vendor’s clearance certificate. For example, where an off-the-plan apartment is acquired and the contract period is greater than 12 months.

    The purchaser may rely on the clearance certificate being valid as long as the date it's made available to the purchaser, is within the clearance certificate period stated on the certificate.

    Do the rules apply if the market value of the asset acquired is exactly $750,000?

    Yes, the transaction will only be excluded from the rules if the market value of the taxable Australian real property or company title interest acquired is less than $750,000.

    Estimated market value $750,000 or above

    If the vendor is uncertain whether the $750,000 threshold will be reached (for example, because the property is going to auction or a sales contract is yet to be signed) the vendor may wish to be conservative and apply for a clearance certificate. If the property is then sold for less than $750,000, the vendor doesn't need to provide the purchaser with the clearance certificate.

    Selling property with multiple titles

    Where each parcel of real property sold is subject to a separate title, each is considered a separate CGT asset.

    Example

    Bob owns a small farm which consists of three separately titled blocks, each valued at $700,000 by an independent valuer, but they are not able to be sold separately under the farm's land planning permit. As a separate asset, all three titles would come within the exclusion of subsection 14-215(1) as each has a market value less than $750,000. This is the case regardless of whether there are one or multiple contracts involved for the sale of the three titles.

    Any restrictions imposed by planning permits on the titles do not change the fact that each parcel of real property is on a separate title, hence recognised as a separate asset.

    End of example

    When we withdraw a clearance certificate once it has been issued

    We may withdraw a clearance certificate at any time if we obtain further information indicating that the vendor is a foreign resident.

    This is to ensure that the vendor is not able to use the clearance certificate where we determine they have no entitlement to it.

    We would expect that the withdrawal of a clearance certificate, once issued, would only occur in very rare situations given the checks and processes that have been put in place when issuing them.

    Where a purchaser has, in good faith, not withheld from the purchase price on the basis of being provided with a clearance certificate prior to settlement, the purchaser will have met their obligations under the withholding rules.

    Any subsequent decision by us to withdraw the clearance certificate from the vendor doesn't alter the fact that the purchaser had correctly complied with the withholding provisions at the time of settlement.

    The purchaser will not be subject to any interest or penalty for failure to withhold in these circumstances, as at no stage was the purchaser required to withhold, given the vendor had produced a clearance certificate prior to settlement.

    When the vendor provides a fraudulent clearance certificate

    If a purchaser receives a document that appears to be a genuine and valid clearance certificate, and in good faith relies on that document to not withhold, we will not pursue the purchaser for the withholding.

    If the document is subsequently found to be fraudulent, we will hold the vendor liable for making a false and misleading statement and may prosecute them.

    Deceased estates

    We have set out in a legislative instrument that no withholding (and hence no clearance certificate) is required in the following circumstances:

    • a beneficiary acquires ownership of the relevant asset under the deceased individual’s will, by operation of an intestacy law etc
    • a beneficiary acquires ownership of the relevant asset from the legal personal representative (executor/trustee) of the deceased individual in a manner not described above
    • the property devolves to the legal personal representative (executor/trustee) following the death of the individual
    • a surviving joint tenant acquires the deceased joint tenant’s interest in a CGT asset.

    See also:

    Any other transfer or disposal of the relevant asset by the legal personal representative will create a withholding obligation. For example, the legal personal representative (executor/trustee) may decide to transfer or dispose of the relevant assets to a third party.

    Situations involving mortgagors and mortgagees

    This concerns situations where a mortgagor (borrower) has borrowed funds from a mortgagee (creditor, for example a bank), that mortgagor is unable to repay the loan and the mortgagee requires them to sell the secured asset which is subject to withholding (referred to as property in this section).

    There are three situations where this commonly applies:

    • Situation 1 – the mortgagor retains title to the sale as the mortgagee has not repossessed the title to the property but has ordered its sale.
    • Situation 2 – where the mortgagee does take possession of the property and sells in that capacity, but there is no transfer of title from mortgagor to mortgagee.
    • Situation 3 – the mortgagee has repossessed and taken title to the property from the mortgagor. This is commonly known as a foreclosure. In this situation there are two transactions where foreign resident capital gains withholding may apply    
      • the transaction concerning the transfer of title from the mortgagor to the mortgagee (generally deemed to be a sale of the property at market value)
      • the transaction concerning the transfer of title from the mortgagee to the ultimate purchaser.
       

    Applying for the clearance certificate or vendor variation

    The entity with the title to the property is required to obtain the clearance certificate so foreign resident capital gains withholding won't apply.

    In situation 1, the mortgagor remains the legal owner of the property. Therefore it is the mortgagor who has to obtain the clearance certificate and ensure it is provided to the ultimate purchaser for foreign resident capital gains withholding not to apply.

    In the event the mortgagor doesn't cooperate with the mortgagee, then the mortgagee, as a creditor, can apply for a foreign resident capital gains variation to have the withholding reduced to the extent that the amount it is owed would not be covered by the sale proceeds if an amount was withheld.

    In situation 2, the mortgagee cannot obtain a clearance certificate as they are not the legal owner of the property. However, the mortgagee can apply for a foreign resident capital gains variation to have the withholding reduced to the extent that the amount it is owed would not be covered by the sale proceeds if an amount was withheld.

    There is no specific requirement as to who physically provides the clearance certificate to the purchaser. Therefore, with both situation 1 and 2, if the mortgagor, as vendor, obtains the clearance certificate, then provides it to the mortgagee, and the mortgagee provides it to the purchaser the ultimate purchaser can verify that the clearance certificate issued to the vendor is valid so long as it matches the name on the certificate of title.

    In situation 3, for foreign resident capital gains withholding not to apply, clearance certificates are required to be provided to the purchasers for both transactions, that is:

    • repossession by the mortgagee from the mortgagor. The mortgagor, as the vendor, is the party that has title of the property and therefore would obtain the clearance certificate. As in situation 1, if the mortgagor doesn't co-operate in this regard, the mortgagee, as a creditor, can apply for a foreign resident capital gains variation
    • sale of the property by the mortgagee to the ultimate purchaser. As the mortgagee has title to the property it is mortgagee that would obtain the clearance certificate.

    When the purchaser should withhold

    For the purpose of this part it is assumed that the entity taken to be the vendor is not entitled to a clearance certificate and therefore foreign resident capital gains withholding applies.

    In situation 1, the mortgagor remains the legal owner of the property. Therefore if the mortgagor doesn't have a clearance certificate, the mortgagee is required to withhold. If either the mortgagor, as vendor, or the mortgagee, as creditor, have applied and been granted a foreign resident capital gains withholding variation, the reduced rate of withholding specified in the variation notice applies.

    In situation 2, the purchaser of the property would need to withhold at the 12.5% rate unless the mortgagee has obtained a foreign resident capital gains variation to have the withholding reduced to the extent that the amount it is owed would not be covered by the sale proceeds if an amount was withheld. Where a variation has been obtained by the mortgagee, the purchaser withholds at the rate specified in the variation notice provided by us to the mortgagee.

    For situation 3, both transactions have to be considered:

    • repossession by the mortgagee from the mortgagor – foreign resident capital gains withholding applies to this transaction with the mortgagee (creditor) having to withhold the 12.5% foreign resident capital gains withholding unless either the mortgagor, as vendor, or the mortgagee, as creditor, have applied and been granted a foreign resident capital gains withholding variation.
    • sale of the property by the mortgagee to the ultimate purchaser – foreign resident capital gains withholding would apply. Therefore, unless the mortgagee has obtained a foreign resident capital gains withholding variation, the ultimate purchaser is required to withhold at a rate of 12.5%.

    Exceptions

    There may be a situation where the mortgagee’s name is not on the title as registered proprietor (although the mortgage will be listed as an interest on that title). This is because the mortgagee has not repossessed the property. However, the contract of sale will show the vendor as a mortgagee in possession exercising a power of sale under the mortgage.

    With respect to paying the foreign resident capital gain's withholding, the name of the vendor on the purchaser payment notification form must be the mortgagor (borrower) as the mortgagee (creditor) has never taken title to the asset. This ensures that the foreign resident capital gains withholding credit that arises correctly goes to the borrower which is also the entity that is required to declare the capital gain.

    The company is insolvent or under external administration

    If the entity from which the asset is acquired is a company that satisfies any of the conditions in paragraph 161A(1)(a) of the Corporations Act 2001 the transaction is excluded. The purchaser will not have a withholding obligation. This exclusion applies broadly; it is not limited to transactions involving assets for which there is a receiver.

    Although there is no need to provide a clearance certificate to the purchaser in this instance, the purchaser may want to see evidence from the company or mortgagee that the exclusion applies to support their decision not to withhold.

    On sale of property with no immediate transfer of title

    A vendor may dispose of a property subject to the withholding regime before they have taken ownership of it. This is also known as an 'on-sale'.

    Company A signs a contract to sell a property for more than $750,000 to company B. At this time company B has not taken ownership of the property from company A. The legal ownership of the property remains with company A. Company B’s name is not recorded against the property at the Land Titles Office. Prior to the settlement with company A, company B enters a contract with company C for disposal of the property. As a result of this contract company C agrees to acquire the property and undertake the settlement with company A.

    The clearance certificate is required from company A to company C.

    Relationship breakdown

    There is no need for a clearance certificate in these circumstances as long as:

    • the transfer happens under the Family Law Act 1975 or under a State law, Territory law or foreign law relating to breakdowns of relationships between spouses
    • the transferee possesses a copy of the relevant documentation specified in subsection 126-5(1) of the ITAA 1997 by the time of the finalisation of the transfer, showing that the asset was acquired in accordance with subparagraph 3(i).

    See also:

    Income tax exempt entities

    There is no need for the entity to provide a clearance certificate where the entity provides the purchaser with evidence that they are an income tax exempt entity. This should either be:

    • a private binding ruling confirming its income tax exemption valid for the year in which the transaction is occurring
    • documentation showing that the entity is endorsed for income tax exemption as a registered charity under item 1.1 of section 50-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

    See also:

    Government authorities and not-for-profit organisations

    The withholding applies to all transfers of property unless they are specifically exempted.

    Government authorities and not-for-profit organisations are not specifically exempted from the withholding and must obtain a clearance certificate or apply for a variation otherwise the foreign resident capital gains withholding will apply.

      Last modified: 04 Dec 2018QC 48972