New ATO Rules: What Sellers Need to Know About Clearance Certificates
Q: What is the new requirement for selling property in Australia?
A: As of January 2025, all property sellers in Australia must obtain a clearance certificate from the Australian Taxation Office (ATO) to confirm their tax residency. If they don’t, 15% of the sale price will be withheld by the buyer and sent to the ATO.
Q: Who does this rule apply to?
A: The new rule applies to all Australian property sellers, not just foreign residents. Previously, it only affected foreign owners and Australian residents selling properties worth $750,000 or more.
Q: When do the new rules take effect?
A: The changes apply to contracts signed on or after 1 January 2025. If a contract was signed before this date, the seller is not affected.
Q: What changed under the updated law?
A: The main changes include:
- The $750,000 property value threshold has been removed, meaning all properties are now included.
- The withholding tax rate has increased from 12.5% to 15%.
- All sellers, regardless of property value, must provide a clearance certificate.
Q: What happens if a seller doesn’t provide a clearance certificate?
A: If the seller doesn’t obtain and provide the clearance certificate before settlement, the buyer is legally required to withhold 15% of the sale price and pay it to the ATO.
Q: How can sellers avoid having 15% withheld?
A: Sellers should apply for a clearance certificate as early as possible to ensure it is available before settlement. Most certificates are issued within a few days, but some cases may take up to 28 days. Each certificate is valid for 12 months.
Q: What if 15% is already withheld? Can the seller get it back?
A: Yes, but only after filing an income tax return in the following tax period. The ATO will process any eligible refunds based on the seller’s tax assessment.
Q: Why has the government made these changes?
A: These updates are part of the Foreign Resident Capital Gains Withholding (FRCGW) rules, which ensure tax compliance on property sales and prevent tax avoidance by foreign and domestic property owners.