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  • Vendor declarations

    For all other asset types subject to foreign resident capital gains withholding, the vendor may provide the purchaser with a vendor’s declaration to specify withholding isn't required on the acquisition of the asset. There are two types of vendor declarations:

    • residency declaration
    • not an indirect Australian real property interest declaration.

    Trusts and superannuation funds

    The trustee of a trust or superannuation fund completes the vendor application in their own capacity as either a company or an individual if the following apply:

    • they are the entity that has legal title to the asset
    • there is no mention of the trust or fund or 'in holding the property on trust'.

    Residency declaration for transactions that are not real property

    Where the purchaser believes the vendor is a foreign resident, they can request the vendor make a declaration confirming their Australian tax residency.

    Purchasers may believe the vendor is a foreign resident if either:

    • they know the vendor has an address outside of Australia
    • sale proceeds are to be paid to a place outside of Australia.

    When a vendor makes a declaration stating they are an Australian tax resident, the purchaser will not treat them as a foreign resident.

    Alternatively, the vendor may voluntarily provide a declaration to the purchaser without being asked to supply it.

    Purchaser can rely on the declaration

    The purchaser may rely on a residency declaration supplied by the vendor, where the purchaser is acquiring assets that are not Australian real property. When a purchaser receives a vendor declaration, they will not withhold any amounts unless they know the declaration is false.

    Not an indirect Australian real property interest declaration

    A vendor may provide the purchaser with a declaration confirming either:

    • that the membership interests they are disposing of are not indirect Australian real property interests
    • where an option is granted, that the membership interests subject to the option are not indirect Australian real property interests.

    This is allowed, as the vendor would be in the best position to determine if the membership interest being disposed of, or subject to an option, is an indirect Australian real property interest.

    Purchaser can rely on the declaration

    A ‘Not an indirect Australian real property interest’ declaration supplied by the vendor may be relied on by the purchaser where the purchaser is acquiring the membership interests in an Australian entity or an option over the membership interests specified in the declaration.

    Where a valid declaration is provided there will be no obligation on the purchaser of the membership interest, or grantee of the option transaction, to withhold. A declaration may be relied on unless the recipient knows the declaration is false.

    Interests on the stock market

    Where a vendor is disposing of the interest in the Australian entity on an approved stock exchange (such as the ASX or Chi-X), there is no need for the declaration to be provided. This is because interests disposed of on an approved stock exchange are an ‘excluded asset’ for the purposes of this withholding.

    This also applies to transactions that occur on a crossing system – for example, disposal of shares in dark pools.

    When the vendor doesn't supply a declaration when requested

    If the vendor doesn't supply a declaration when requested, the purchaser should withhold 12.5% from the purchase price at settlement.

    Valid declaration from a vendor

    A vendor’s declaration is valid for six months from the date it's signed by the vendor. It's only valid for the listed vendor and specified period on the declaration. The specified period may start retrospectively but cannot exceed six months from the date the declaration is signed by the vendor.

    It's the vendor’s responsibility to provide the purchaser with a declaration and ensure the date that it was provided to the purchaser is within the six-month validity period of the declaration.

    For the purchaser to rely on the declaration, the:

    • name of the vendor on the declaration must match the name of the owner of the asset (unless proof of name change is provided)
    • date the vendor provides the declaration to the purchaser must be a date that falls within the specified period on the declaration.

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

    How to declare

    There is no approved form that can be completed by the vendor for a declaration. But we have a template that can be used for this purpose.

    Next step:

    Multiple vendors

    A declaration is only valid for the vendor specified in the declaration. If an asset is acquired from multiple vendors, each vendor would need to provide the purchaser with their own declaration, to ensure the withholding obligation does not apply to each of them.

    Declarations and the disposal of real property

    A vendor can't use a declaration to avoid having the purchaser withhold the 12.5% withholding in relation to the disposal of real property.

    False vendor declarations

    A purchaser can rely upon the declaration unless they know it to be false.

    A purchaser will be treated as knowing a vendor declaration is false where they have specific knowledge of this fact. A purchaser will have such knowledge when they are a party to the fraud committed by the vendor, or when they have other information that indicates the declaration is implausible. The fact the purchaser may have reasonable grounds to doubt the accuracy of the declaration does not, of itself, and without further information, mean the purchaser can't rely on it.

    Penalties

    A vendor that makes a false or misleading declaration must pay a penalty to the Commissioner. The amount of the penalty varies depending on the severity of the offence.

    The penalty is:

    • 120 penalty units where the vendor has knowingly made a false or misleading declaration
    • 80 penalty units where they have recklessly made a false or misleading declaration
    • 40 penalty units where the declaration is false or misleading as a result of the vendor failing to take reasonable care.
      Last modified: 07 Nov 2019QC 48972