The Australian Taxation Office requires Australian residents selling property to obtain a clearance certificate before settlement.
This forms part of the foreign resident capital gains withholding rules, which apply to all property sales unless the seller can confirm they are an Australian tax resident.
Understanding how this works is important to ensure your sale proceeds are not impacted.
- What a clearance certificate actually is
A clearance certificate is an ATO-issued document that confirms you are an Australian resident for tax purposes.
It is used in property transactions to show the purchaser that withholding tax does not apply to your sale.
Without this certificate, the purchaser is required to treat you as a foreign resident for withholding purposes.
- Why it matters when selling property
If a valid clearance certificate is not provided at or before settlement, the purchaser is required to withhold 15% of the sale price and remit it to the ATO.
This applies regardless of:
– Whether you are actually an Australian resident
– Whether you are making a capital gain
– Whether the property is your main residence
The withholding is not discretionary — it is a strict requirement under the rules.
- When you need to apply
You should apply for a clearance certificate as soon as you are considering selling your property.
While many certificates are issued quickly, processing can take up to several weeks in some cases.
The certificate is valid for 12 months, meaning it can be used for future transactions within that period if your circumstances remain the same.
Leaving the application too late can create unnecessary pressure at settlement.
- Who needs to apply
Each legal owner of the property must have their own clearance certificate.
This means:
– Individual owners must apply separately
– Entities such as companies, trusts, or super funds must apply in their own capacity
– Trustees apply on behalf of the relevant entity
The details on the certificate must align with the legal ownership of the property to ensure it is accepted.
- What happens if you don’t have one
If a clearance certificate is not provided by settlement, the purchaser must withhold 15% of the sale price and pay it directly to the ATO.
While this amount can generally be claimed back when your tax return is lodged, it results in:
– Funds being withheld at settlement
– Delays in accessing sale proceeds
– Additional administrative steps
This can create unnecessary cash flow pressure, particularly in larger transactions.
What this means for your business and investments
Clearance certificates are a simple requirement, but they are often overlooked.
For property owners and investors, this means:
– Planning ahead before entering into a sale
– Ensuring tax records are up to date
– Not relying on assumptions around residency
The process itself is straightforward, but timing is critical.
The team at EMspire Advisory are trusted, qualified Chartered Accountants, tax agents, and small business accountants. We work closely with our clients to achieve the best possible outcomes. To find out more, please contact us!
Please note that this information is not specific and is general in nature and cannot be relied on as advice. Please contact us for advice specific to you and your circumstances.