Selling Property in 2025? ATO Clearance Certificate Changes
Jan 1, 2025, ATO Clearance Certificate Changes for Property Sales in Australia
ATO Clearance Certificates are now mandatory for everyone.
Effective January 1, 2025, significant changes to the Foreign Resident Capital Gains Withholding (FRCGW) legislation came into effect.
The Australian Taxation Office (ATO) has now made Clearance Certificates mandatory for all Australian residents selling property. ATO Clearance Certificates are now mandatory for everyone.
What Are the Changes?
Previously, only property sales over $750,000 required an ATO clearance certificate. Now, ALL property sales, regardless of value, require sellers to obtain a clearance certificate from the Australian Taxation Office (ATO).
This means that if you’re an Australian resident selling any property – from a small apartment to a large estate – you MUST obtain a clearance certificate and provide it to the purchaser at or before settlement. Failure to do so will result in 15% of the sale price being withheld by the purchaser and paid to the ATO.
Why the changes?
This change aims to ensure greater tax compliance and transparency in property transactions, providing the ATO with an accurate record of property sales and mitigating tax avoidance.
The updated FRCGW legislation aims to ensure foreign residents pay their capital gains tax obligations before the sale proceeds leave Australia.
While Australian residents are exempt from this withholding, the clearance certificate serves as proof of residency status and eligibility for exemption.
Who Is Responsible for Obtaining the Certificate?
It is the seller's responsibility to obtain the ATO Clearance Certificate. Sellers must present the certificate to the buyer before settlement to confirm that no withholding tax is required to be deducted from the sale proceeds.
Why Are ATO Clearance Certificates Needed?
The purpose of an ATO Clearance Certificate is to confirm that the seller is an Australian resident for tax purposes. Without a certificate, buyers are legally required to withhold 15% of the purcase price and remit it to the ATO. This withholding tax is designed to ensure that any potential capital gains tax liability is accounted for, particularly in cases where the seller is a foreign resident.
Making these certificates mandatory for all sales simplifies the process and ensures that the ATO has accurate information on property transactions.
What Happens If You Don't Have an ATO Clearance Certificate?
If a seller fails to provide an ATO Clearance Certificate at settlement, the buyer legally must withhold 15% of the purchase price and pay it directly to the ATO. This could result in a significant reduction in the funds the seller receives from the sale.
Additionally, sellers who do not obtain a certificate may face delays in receiving withheld funds back from the ATO, as they will need to lodge a tax return to claim any refund.
Are ATO Clearance Certificates Free?
Yes, applying for an ATO Clearance Certificate is free of charge.
How to Apply for an ATO Clearance Certificate
Applying for an ATO Clearance Certificate is a straightforward process that can be completed online through the ATO’s website. Here’s a step-by-step guide:
- Gather Information: Ensure you have your Tax File Number (TFN), property details, and personal identification information ready.
- Access the Online Form: Visit the ATO website and navigate to the Clearance Certificate application form.
- Complete the Application: Fill out the required fields, providing accurate information about yourself and the property being sold.
- Submit the Application: Submit your application online. You will receive a confirmation once the application has been successfully lodged.
- Receive the Certificate: The ATO aims to process applications within 14 to 28 days. Once approved, you will receive your Clearance Certificate, which can be provided to the buyer.
Learn more and apply for a certificate here
If you are planning to sell your property in 2025 or beyond, we recommend starting the application process early to ensure a smooth and compliant settlement. For more information or assistance, consult with your accountant or financial advisor.
