All conveyancing transactions of Australian property with a market value of $750,000 or more require the vendor to make an ATO Clearance Certificate Application and for the purchaser to withhold 12.5% of the purchase price at Settlement and pay the funds to the ATO, if no ATO Clearance Certificate is furnished on or before Settlement.
An ATO Clearance Certificate or Certificate of Clearance issued by the ATO is required where the capital gains tax (CGT) asset to which the conveyancing relates is taxable Australian real property or an indirect Australian real property company title interest.
Failure to make an ATO Clearance Certificate Application and obtain an ATO Clearance Certificate will result in the vendor being treated as a relevant foreign resident for the purposes of the relevant tax law.
This rule applies even if the vendor is actually an Australian resident for other income tax purposes.
The ATO may issue an ATO Clearance Certificate (also called Certificate of Clearance) stating that the vendor of taxable Australian real property or an indirect Australian real property company title interest is not a relevant foreign resident.
The ATO Clearance Certificate will specify that withholding is not required on the acquisition of the Australian property.
An ATO Clearance Certificate is valid for 12 months from the date issued.
Therefore, the vendor does not have to reapply for an ATO Clearance Certificate each time they dispose of a property, as long as the prior ATO Clearance Certificate has not expired.
The ATO Clearance Certificate may be provided to the purchaser at any time during the transaction, but nevertheless it must be provided to the purchaser by settlement.
The purchaser can rely on the ATO Clearance Certificate as proof that they are not required to withhold 12.5% of the purchase price at Settlement and pay the funds to the ATO.
Once the purchaser has received a copy of the ATO Clearance Certificate they have met their obligation, even if the vendor’s circumstances change during the settlement period.
For the sale of all taxable Australian real property with a market value of $750k or more, the vendor is deemed a relevant foreign resident (even if they are in fact Australian) unless the buyer is furnished with a current ATO Clearance Certificate on or before Settlement.
If the vendor fails to provide the required ATO Clearance Certificate on or before Settlement, the buyer is required by law to deduct 12.5% from the purchase price and pay it to the ATO.
In such a situation, the vendor will face significant delays in receiving the full sale proceeds for the property.
To obtain an ATO Clearance Certificate, a vendor who is an Australian resident (or their representative) must complete an online Foreign resident capital gains withholding ATO Clearance Certificate Application Form (NAT 74883).
To access the ATO Clearance Certificate Application Form, visit the ATO website page: Capital Gains Withholding ATO Clearance Certificate Application Form and instructions for Australian Residents.
Conveyancers who are not legal practitioners or registered tax agents cannot complete the ATO Clearance Certificate Application Form on behalf of the vendor.
They can either provide the PDF version of the ATO Clearance Certificate Application Form (or URL hyperlink) to the vendor for them to complete.
If the Vendor is a foreign resident for tax purposes, the Vendor may be eligible to apply for a Variation Notice instead.
The content for this FAQ was sourced from the ATO website page: Capital Gains Withholding ATO Clearance Certificate Application Form and instructions for Australian Residents.
This FAQ was created by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.
This FAQ is intended for general interest + information only.
It is not legal advice, nor should it be relied upon or used as such.
We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.