Selling your home, holiday home or residential investment property this year? What are the implications of the ATO’s new Tax Clearance system?
Published on February 24, 2025 by Dianne Retief
A new year always brings change, and effective from 1 January 2025, all Australian residents and anyone (including foreign persons or entities) that owns taxable Australian real property in Australia will now need to obtain a tax clearance from the Australian Taxation Office (“ATO”) to declare that they are residents of Australia for taxation purposes.
What does this mean?
If you are a foreign resident of Australia or if you have not filed a tax return with the ATO in the last two years, then this may affect you.
Taxable Australian real property includes vacant land, buildings, residential and commercial property located in Australia.
Who needs a foreign resident withholding clearance certificate?
The entity or person that has legal title to the property.
Once contracts for the sale of a property in Australia are exchanged, and before the settlement or completion date, your lawyer/conveyancer will need to provide to the purchaser’s lawyer/conveyancer a tax clearance certificate from the ATO.
The good news is that the clearance certificate is free and can be obtained online through the ATO website. However, the ATO website states that it can take up to 28 days to obtain a clearance certificate.
So, if you are considering selling your home or other real property you own in the near future, now is a good time to apply for a tax clearance certificate. Even if the sale does not proceed, having the certificate in hand is a no-risk step that can save a lot of potential stress and hassle. The certificate, once issued, is valid for 12 months, so allowing sellers/vendors plenty of time to complete their property sale.
If a clearance certificate is not available or is unable to be provided at the time of settlement of the sale of your property, then the purchaser has the obligation to withhold 15% of the sale price and pay this amount to the ATO.
The vendor/seller will then need to lodge a tax return with the ATO, in order for the vendor to claim a refund (in full or part) from the ATO of the funds withheld from the sale price.
Previously, the requirement for a clearance certificate only applied to real property sales where the value (sale price) of the property was $750,000 or more, and the withholding rate was set at 12.5%. However, with the threshold now removed and the withholding rate increased to 15%, more vendors/sellers will be affected by these rules.
What are the consequences of not obtaining a tax clearance for sellers?
Under the new regulations, if a vendor/seller fails to provide a clearance certificate at the time of the completion/settlement date of the sale of any real property owned in Australia , the purchaser is obliged to withhold 15% of the sale price and remit that amount directly to the ATO. This means that if for example, the sale price of your family home is $1,500,000. by not having a clearance certificate could result in a staggering $225,000 being held back. This is money the vendor won’t see again until such time as the vendor files a tax return with the ATO and claims a refund.
If you are considering selling your home, or other real property you own in Australia this year, it is important to make sure that you obtain a clearance certificate from the ATO so that you don’t run the risk of a potential purchaser of your property withholding 15% of the sale price and paying it to the ATO on your behalf.
At Carroll & O’Dea Lawyers, our team of experts can help you with this, as part of the process of selling your property on your behalf.
Please note that this article does not constitute legal advice. If you are seeking professional advice on any legal matters, you can contact Carroll & O’Dea Lawyers on 1800 059 278 or via our Contact Page and one of our lawyers will be able to assist you.
