Foreign Resident Capital Gains Withholding Clearance Certificates

On 1 July 2017 changes to the Foreign Resident Capital Gains Withholding Tax implemented by the 2017 Federal Budget came into force. These changes are very important to consider when selling a property. One main change brought in is that now all Vendors selling property for $750,000.00 and above will require a clearance certificate from the Australian Tax Office (ATO). This is substantially lower than the previous figure of $2,000,000.00.

If a Vendor does not provide a clearance certificate to the Purchaser prior to settlement then at settlement, the Purchaser is required to withhold 12.5% of the purchase price and pay that amount to the ATO.  This is an increase on the pre 1 July 2017 figure of 10%.

Applying for a clearance certificate is a process which can be conducted either by a Vendor personally or by a Vendor’s representative. A clearance certificate is obtained by completing the application process online on the website of the ATO. Legal practitioners may complete the online process on their client’s behalf. Conveyancers and other representatives must first obtain a paper form filled in by the Vendor before completing the online process. 

Clearance certificates can only be obtained by people who are Australian residents for tax purposes. People who are not Australian residents for tax purposes will be unable to obtain a clearance certificate and will be subject to the withholding tax.

A clearance certificate is valid for 12 months from the date it is issued and it can be used for multiple property sales during that time. It is not necessary for a Vendor to reapply for a clearance certificate each time they sell a property during the 12 month time period.

In order for a clearance certificate to be valid then it must satisfy three conditions:

  1. The name on the certificate must match the name on the Certificate of Title; and;
  2. The certificate must be less than 12 months old when it is provided to the Purchaser; and
  3. The certificate must be provided to the Purchaser before settlement.

If you are selling a property for $750,000.00 or more you will require a clearance certificate. Clelands Lawyers Adelaide can answer any queries you may have regarding the clearance certificate and can assist you in obtaining a certificate for your sale.

Tim von Einem

31 August 2017