1300 180 300
hello@westhomeloans.com.au
Why is the ATO doing this?
The ATO has updated legislation for foreign resident capital gains withholding (FRCGW).
FRCGW is designed to ensure foreign residents who sell property in Australia pay their capital gains tax obligations before the proceeds of the sale are moved offshore.
While Australian residents are exempt from this withholding, the clearance certificate serves as your proof of residency status. The new requirement is that all sellers are to provide a clearance certificate from the ATO to purchasers at or before settlement, otherwise 15% of the sale price will be withheld. OUCH!
THIS IS A BIG CHANGE!
Previously, only property sales over $750,000 required an ATO clearance certificate. However, as of 1 January 2025, all property sales in Australia, regardless of the sale price, now require sellers to obtain a clearance certificate from the ATO.
What is a clearance certificate?
A clearance certificate is a document issued by the ATO that confirms the seller is an Australian resident. This certificate exempts the seller from having a portion of the sale proceeds withheld for tax purposes.
Why is this important?
If a seller fails to provide a valid clearance certificate to the purchaser at or before settlement, the purchaser is legally required to withhold 15% of the purchase price and pay it to the ATO.
This can significantly impact the seller’s finances and cash flow as they would need to wait until their next tax return is processed before they receive any refund that may be due.
Sellers can apply for a clearance certificate online through the ATO website. The process is free and most certificates are issued within a few days. However, it’s important to note that in some cases it can take up to 28 days to issue a certificate. Your solicitor or conveyancer may do this on your behalf.
Key points for sellers
Key points for purchasers
Example scenario 1 – Upsizing or downsizing
Stanley and Katie, both Australian residents, sell their family home for $600,000. Katie obtains her clearance certificate in time for settlement, but Stan’s certificate is delayed. As a result, the purchaser must withhold $45,000 (15% of Stans’s share of the sale ) and pay it to the ATO. Stan will not be able to claim this money until he submits his 2025 tax return. ‘Not happy Stan!’
Example scenario 2 – Separation tips!
Susie and Chris separated 15 months ago and decide to sell the family home in their property settlement. They were offered $1,500,000.
Both are Australian residents, however Susie has changed back to her maiden name. As the title deeds of the family home were still in her married name, the purchaser’s solicitor did not recognise her maiden name at settlement.
As a result, the purchaser’s solicitor insisted that 15% of Susie’s share of the sale ($112,500) needed to be submitted to the ATO on settlement. Fortunately, Susie was quick to address the concerns and provided a change of name certificate to satisfy all parties. Otherwise Susie would have been left without a highly needed $112,500 at settlement and would not be able to claim this money until she submitted her 2025 tax return.
Example scenario 3 - Family estate
Ann, Elizabeth and John are selling their mother’s family home valued at $900,000 after grant of probate.
Elizabeth had sold a property 18 months prior and thought she had a clearance certificate. As her certificate had expired and had left it too late to obtain a new one in time, the purchasers were not prepared to postpone settlement and wait for a new certificate to arrive as they had a simultaneous settlement arranged with their previous property.
The options were:
- If settlement was delayed, all three parties would be subjected to penalty interest until settlement, or
- Settle now and Elizabeth would have to wait to claim her 15% ($45,000) in her 2025 tax return.
I’m guessing you know what her siblings wanted…
Please be aware that these new regulations apply to all property sales in Australia including residential, commercial and vacant land.
By understanding and complying with these new rules, both sellers and purchasers can ensure a smooth property transaction process.
Key dates and contracts:
Key information
This is a significant change and we understand you may have questions. We are committed to keeping you informed and helping you navigate these new requirements.
Contact us today to discuss your specific situation and how we can assist you.
If you are selling a property this year, start the process of obtaining your ATO clearance certificate when you list your property to ensure a streamlined and hassle free property settlement!
Thanks for reading this month’s property and finance update.
We look forward to hearing from you soon.
