Selling or buying for $750K+ – ATO Clearance certificate now required

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What’s the change?

Last year, the Australian Taxation office brought in new requirements for property sellers to assist with the collection of foreign resident’s tax liabilities.
On 1 July 2017, the requirements changed so that more sellers are required to obtain clearance certificates prior to settlement.

Do I need an ATO Clearance certificate?

Only if you sell your property for $750,000 or more.
Previously, sellers were only required to obtain an ATO Clearance Certificate if the property was being sold for $2,000,000 or more.
The reduced threshold only applies to contracts dated on or after 1 July 2017. If your contract was fully signed before this time, the higher threshold will still apply – even if settlement has not yet occurred.

What is an ATO Clearance certificate?

Essentially, it is a statement from the Australian Taxation Office that you are not a foreign resident.
A clearance certificate is provided to the buyer prior to settlement to confirm that the buyer does not need to pay part of the purchase price to the ATO for Capital Gains Tax purposes.

What if I can’t get one?

If you sell your property for $750,000 or more, and you don’t provide the buyer with a clearance certificate prior to settlement, then the buyer is required by law to deduct 12.5% from the purchase price and pay it to the ATO. This will mean significant delays in receiving the full sale proceeds for the property.

When should I apply? The sooner the better!

The current waiting time for a clearance certificate is 14 to 28 days.
However, since the threshold has been reduced, there will be many more sellers making applications to the ATO for certificates and it is possible that waiting times will increase.
If you are seeking to sell your house for $750,000 or more, we suggest that you make an application for a clearance certificate as soon as possible.
Certificates remain valid for 12 months from the issue date, so you won’t usually need to worry about the certificate expiring prior to your sale.

Can I delay settlement?

Not being able to obtain a clearance certificate will not allow you to delay settlement under a standard contract.
If you are concerned that you will not be able to obtain a certificate prior to the settlement date under your contract, you should consider requesting an extension on settlement, or if possible, inserting a special condition into the contract which allows you to delay settlement if a certificate is not available by the settlement date.

How to apply

Applying is easy and there are no fees involved.
Simply visit the ATO’s website and complete their online application form to get things started.
If you require any assistance, we are here to help.

What if I am a foreign resident?

If you are a selling your property for $750,000 and more and you are a foreign resident, the buyer will be required to pay 12.5% of the purchase price to the ATO to be offset against your future CGT liabilities. This should be discussed further with your accountant.
If you have any questions about ATO Clearance Certificates, please contact our property team to discuss. Alternatively, you can access additional information from the ATO website by clicking here.