ATO Clearance Certificate – 2023 Property Tax Guide
Recent law changes from 1 July 2017 in relation to the ATO clearance certificate will now affect over half of all real estate sales within Australia. Although the new laws target foreign investors, the burden falls on Australian residents to prove themselves in order to bypass the foreign resident capital gains tax.
The video below provides a brief overview on the ATO Clearance Certificate changes with a focus on Queensland, but note that the changes are nation-wide. This page will guide you through getting your own ATO clearance certificate in detail, as well as give information about the new tax adjustments.
The best real estate agents can guide you easily through the new changes, so be sure to use our free service for a personalised selection of the best agents in your area.
Table of Contents
What is an ATO clearance certificate?
The ATO clearance certificate indicates to both the purchaser and the government that the seller is an Australian resident.
By showing the certificate before settlement of a property, the seller signals to the purchaser that they do not have to withhold the foreign resident capital gains tax of 12.5% from the purchase price for properties valued over $750,000.
The certificate is valid for 12 months from the issue date and used for multiple sales of property during this period.
What is foreign resident capital gains withholding?
The Australian Taxation Office (ATO) gets buyers of property worth $750,000 or more to put aside 12.5% of the property price to give to the ATO if the seller is a foreign resident. This foreign resident withholding tax has been in effect since 1 July 2017. Previously from 1 July 2016, the threshold for the tax was $2 million, and the withheld amount was 10% of the purchase price.
To prove that the seller is NOT a foreign resident, the seller must present an ATO clearance certificate to the buyer before settlement of the property.
If the certificate is not produced by settlement of the property, the seller is treated as a foreign resident. In this situation, 12.5% of the price must still go to the Australian Tax Office regardless of the seller’s actual nationality.
Why is there a foreign resident capital gains tax?
Growing pressure from Australians about mounting affordability issues has produced the current foreign resident capital gains tax laws, upping the tax to 12.5% and lowering the price threshold to properties over $750,000. The capital gains tax change comes with a host of other laws aimed at lowering vacancies and improving capital gains tax integrity from foreign investment.
Who is affected by the foreign resident capital gains tax?
According to information broker company GlobalX CEO Peter Maloney, roughly 60% of the Australian real estate market is affected by the 1 July 2017 changes, as opposed to the roughly 11% previously.
All sellers and buyers of property at or over $750,000 in value within Australia are affected by these changes.
Below are details relevant to your role and background in the real estate sale process.
Impacts on Australian resident property sellers
As an Australian resident property seller, you have the ability to be exempt from the foreign resident capital gains tax.
You are exempt if the property is below $750,000 in value, otherwise, you must provide an ATO clearance certificate to the buyer of your property. They will not be required to withhold 12.5% of the purchase price for capital gains tax once they have seen the clearance certificate.
If your property is being auctioned off and the final price is unclear, it would be best to seek advice from your real estate agent about your chances of receiving bids over $750,000. Be safe and apply for the clearance certificate to avoid any kind of delay in settlement.
There may be additional charges involved for legal counsel during the process of applying for and sighting the documents, although the clearance certificate application process itself is free.
When there are multiple vendors for the same property, you will each need to apply for your own clearance certificates.
You are still treated as a foreign resident seller if you fail to produce a certificate at or before settlement, and therefore lose out on 12.5% of the value of your property.
You may delay settlement to obtain a clearance certificate, but only through an agreement between yourself and the purchaser.
If you would like an idea of how much capital gains tax you may have to pay as an Australian resident, have a look at our capital gains tax calculator.
What happens to foreign resident property sellers?
The buyer of the property is required to withhold 12.5% of the purchase price from their payment to you. This amount is then given to the government as part of the foreign resident capital gains tax, losing you 12.5% of the value of the sold property.
Although you are not allowed to apply for an ATO clearance certificate as a foreign resident, you may still claim an exemption from the tax on a main residence basis if you owned the property by 9 May 2017. This main residence exemption is valid only until 30 June 2019.
You may also apply for a variation of the tax rate, depending on your individual circumstances. Revenue loss that offsets potential capital gains is one such circumstance. Be sure to apply as early as possible for smooth sale of your property as variation applications are handled manually.
Effects on property buyers
Regardless of your nationality as a property buyer, if the seller does not produce an ATO clearance certificate by settlement date, they are to be treated as a foreign resident. You are required to withhold 12.5% of the purchase price to be given to the Australian Tax Office.
If there is no clearance certificate given to you, fill out the purchaser payment notification form. This tells the ATO that a transaction will take place where the foreign resident capital gains tax applies. This starts the process of paying the tax to the government. You are required to pay shortly after settlement. Note that payments after the due date may attract extra interest.
Applications are free and can be started online on the ATO website here. Once the application form is filled out, you can also lodge it online for faster processing or print and mail/fax the form to the Australian Taxation Office.
Your conveyancer, tax agent or legal practitioner may help you through the process of applying for the ATO clearance certificate. They may even apply on your behalf as your representative depending on their legal training. This may incur additional fees.
You will need some important information before you start. Before you begin the application process, make sure you have:
Vendor tax file number (TFN) or Australian business number (ABN)
Contact person details (for any additional questions)
When should I apply for an ATO clearance certificate?
Make sure you apply as soon as possible to avoid delaying settlement.
The ATO states that lodging your application online is a surefire way to faster processing times.
According to the Australian Tax Office website, roughly half of all applications are automatically processed. The ATO will send the certificate within days.
However, the ATO manually processes mail applications and it takes between 14 to 28 days to issue a certificate, depending on complications with the information entered or otherwise. Particularly problematic applications may take even longer to process, and the ATO states that they will not prioritise applications based on how urgently the certificate is needed.
By picking the best agent, you can be sure that their expertise will guide you through the ATO clearance certificate application process safely.
Which Real Estate Agent is committed to swiftly (and for free!) finding the best agents in your area that excel. Don’t hesitate in calling 1300 66 555 7 or visiting our homepage for more information on quickly securing your perfect agent.