What is an ATO Clearance Certificate and New Requirements Introduced for Property Sellers

What is an ATO Clearance Certificate and why is it necessary? An Australian Taxation Office (ATO) Clearance Certificate confirms a property seller’s Australian tax residency status. It is necessary for correct handling of capital gains tax, especially when dealing with foreign buyers, and prevents them from being unfairly penalised. The ATO Clearance Certificate simplifies the tax process for everyone involved. 

As of 1 January 2025, all individuals seeking to sell or transfer property need to secure an ATO Clearance Certificate for the prospective buyers before the settlement date, as a means to aid in gathering tax liabilities from foreign residents. 

These ATO Clearance Certificates have a validity of up to 12 months from the date it is issued and can be used by the same seller entity for multiple contracts. 

What is an ATO Clearance Certificate Property Value Threshold, Update 

Initially, as of 1 July 2017, the property value threshold for selling or transferring decreased from $2,000,000.00 to $750,000.00. However, as of 1 January 2025, the threshold has fallen even further to $0.00. This implies that a seller is mandated to procure and provide an ATO Clearance Certificate irrespective of the value of sale or transfer. If a certificate is not provided, the purchaser is permitted to withhold 15% of the purchase price and pay it to the ATO at settlement. 

This means that every seller, regardless of the property’s sale price, must obtain and provide an ATO Clearance Certificate. If a seller fails to provide this certificate, the buyer is legally required to withhold 15% of the purchase price and pay it to the ATO at settlement. 

What happens if I can’t obtain an ATO clearance certificate? 

In case you are unable to provide an ATO Clearance Certificate at the time of selling your property, the buyer is legally bound to deduct 15% of the purchase price and remit it to the ATO at settlement. This was previously 12.5%.  

This could cause a considerable delay in receiving the full sale proceeds for the property if you are entitled to a refund from the ATO. The withholding process can lead to a prolonged wait time, as sellers may need to file additional paperwork to claim a refund, depending on their tax status.  

Moreover, this could impact your financial planning, as the withheld amount might not be accessible for several months. To avoid such delays, sellers should ensure they apply for the clearance certificate well in advance of the settlement date. Seeking professional advice from a solicitor or tax consultant can also help streamline the process and minimise complications. 

Ensuring Compliance for Buyers  

Buyers are advised to employ the services of a solicitor to confirm that the correct entity has received the ATO Clearance Certificate. Engaging a legal professional ensures that all necessary documentation is in place and that there are no errors in the clearance certificate that could lead to unexpected tax liabilities. 

Failure to comply with regulations regarding the Capital Gains Tax (CGT) withholding could lead to severe penalties, including financial fines and legal consequences. Additionally, buyers should maintain proper records of the clearance certificate to avoid disputes or complications during settlement. Understanding the importance of verifying the certificate early in the transaction process can save buyers from potential issues down the line. 

The Application Procedure 

You can easily apply for an ATO Clearance Certificate by visiting the ATO’s website and filling out their online application form. Each seller is required to fill in a separate application which is a simple 5-minute task. The application can be completed either online or via a paper form, though online submissions are generally processed faster. 

Step-by-Step Guide to Applying for an ATO Clearance Certificate: 

Step 1: Visit the ATO Website. Navigate to the ATO’s official website and locate the clearance certificate application page. 

Step 2: Gather Required Information. Ensure you have all necessary details on hand, including your full name, contact details, tax file number (TFN), Australian Business Number (ABN) (if applicable), and property details. 

Step 3: Complete the Application Form. Fill out the form accurately, ensuring that all personal and property-related details are correct. 

Step 4: Submit the Application. If applying online, review all details before submission. For paper applications, mail the completed form to the ATO’s designated address. 

Step 5: Wait for Processing. The ATO typically processes applications within a few days to a few weeks. Applying well in advance of settlement is recommended to avoid delays. 

Once issued, the certificate should be provided to the buyer before the settlement date to ensure compliance with tax requirements. By following these steps, sellers can avoid unnecessary delays and ensure a smooth property transaction. 

Additional Instructions for Foreign Residents 

For foreign residents looking to sell their property, failure to obtain an ATO Clearance Certificate will result in the buyer being required to withhold 15% of the purchase price and remit it to the ATO. This amount is deducted at settlement and can only be refunded, if applicable, after the foreign resident lodges their next income tax return and the ATO processes their claim. 

You should take this matter up with your accountant and contact them as early as possible, preferably even before you list your property for sale. Understanding what is an ATO Clearance Certificate is crucial for foreign residents to avoid complications. 

To ensure a smooth transaction and avoid unnecessary delays or financial setbacks, foreign sellers should take the following steps: 

Step 1: Consult an Accountant Early – Before listing the property for sale, seek advice from an accountant to understand the tax implications and ensure all necessary documentation is in order. 

Step 2: Apply for an ATO Clearance Certificate in Advance – The process may take several weeks, so early application is essential to avoid any withholding at settlement. 

Step 3: Keep Track of the Application Status – Follow up with the ATO if there are any delays in processing the clearance certificate to prevent last-minute issues. 

Step 4: Understand Potential Refund Processes – If the 15% withholding has already been deducted, work with your accountant to file a tax return and claim any eligible refunds as soon as possible. 

Importance of ATO Clearance Certificate for Buyers 

What is an ATO Clearance Certificate importance for a buyer? The certificate is important because it protects the buyer from potential penalties. Buyers must ensure the seller provides a valid ATO Clearance Certificate before settlement. If not, they will incur penalties to the ATO. The certificate confirms the seller’s tax residency status and ensures the buyer is not held liable for unpaid capital gains tax. Engaging a lawyer helps buyers verify compliance and avoid these penalties for a smooth transaction. 

For expert guidance on what is an ATO Clearance Certificate and further information regarding the new property tax requirements for sellers, we invite you to reach out to Cairns Conveyancing Solicitors.  Our specialised property team, adept in handling all property-related matters, is readily available for your assistance.