2025 Changes to Clearance Certificates for Aussie Vendors
The Australian Taxation Office (ATO) has expanded its foreign resident capital gains withholding (FRCGW) rules to apply to all Australian residents who own property.
Under the revised regulations, anyone selling property in Australia must provide the buyer with a clearance certificate confirming their status as an Australian resident for tax purposes at the time of settlement or earlier.
The updated rules apply to contracts signed on or after 1 January 2025. Sellers who have signed agreements before are not impacted by the new requirements.
This follows updates to legislation for FRCGW with the Treasury Laws Amendment Bill passing on 28 November 2024.
What is a Clearance Certificate?
A Clearance Certificate is a document from the ATO that confirms you are an Australian resident for tax purposes.
Without it, the buyer must withhold money from the sale and send it to the ATO.
Who Needs a Clearance Certificate?
- Any Australian resident selling property in Australia.
- Both owners must apply if the property is jointly owned.
Changes to Clearance Certificates
1. Increased Withholding Rate
- Previous Rate (until 31 Dec 2024): 12.5% for property valued at $750,000 or more.
- New Rate (from 1 Jan 2025): 15% applies to all property sales, regardless of value.
This means sellers without a valid clearance certificate at settlement will face a higher withholding percentage.
2. Expanded Scope of Properties
- Previously: Only properties valued at $750,000 or more were subject to withholding.
- From 1 Jan 2025: All property sales are covered, regardless of the sale price or property value.
Key Implications for Sellers
- Apply Early: Clearance certificates can take up to 28 days to process, so apply as soon as you plan to sell. Clearance certificates are free and valid for 12 months.
- Joint Owners: Each owner must have their own certificate, or their share of the sale could face withholding.
- No Certificate = Delays in Funds: Without a clearance certificate, sellers will need to wait until their next tax return is lodged and processed to reclaim withheld 15% from the ATO.
Which Properties Need a Clearance Certificate?
- Vacant land, buildings, residential and commercial property
- Mining, quarrying or prospecting rights where the material is situated in Australia
- Indirect Australian real property interests (IARPI), where the holder has a right to occupy land or buildings on land.
Who can Apply?
Those who can apply for a clearance certificate include:
- Vendors
- Legal practitioners
- Tax agents
- Conveyancers
- Real estate agents
- Solicitors and registered tax agents representing the vendor on their behalf.
M5 Industrial advises you to reach out to the solicitor or conveyancer managing the sale of your property to assist with your clearance certificate application.
How to Apply
- Apply online through the ATO website at https://www.ato.gov.au/single-page-applications/frwt-certificate
- Provide the certificate to the buyer before settlement.
Tip: Even if you don’t end up selling, there’s no penalty for having a clearance certificate.
Information obtained from Australian Taxation Office Website
https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/foreign-residents-and-capital-gains-tax/foreign-resident-capital-gains-withholding/australian-residents-and-clearance-certificates