Protect your property sale proceeds: Understanding mandatory clearance certificates

What is a Clearance Certificate?

A clearance certificate is an Australian Taxation Office (ATO) document that confirms your status as an Australian resident for tax purposes. This certificate exempts you from the Foreign Resident Capital Gains Withholding (FRCGW) requirements that would otherwise see 15% of your property sale proceeds withheld.

Why this matters to every property seller

Without a valid clearance certificate presented to the purchaser before settlement, they are legally obligated to withhold 15% of the sale price (or market value if not sold at arm's length) and remit it to the ATO.

To put this in perspective, on a property selling for $650,000, that's $97,500 that would be unavailable to you at settlement. If you're planning to use these funds for another property purchase, this could significantly impact your plans.

Real-world example

Consider Maisie and Max, a couple selling their family home for $650,000:

• With clearance certificates: They receive the full $650,000 at settlement
• Without clearance certificates: The purchaser must withhold $97,500 ($48,750 each), forcing Maisie and Max to wait until their tax returns are processed before accessing these funds

How to obtain your Clearance Certificate

1. Apply early: Don't wait until you've listed your property. Certificates are free and valid for 12 months
2. Allow sufficient time: While most certificates are issued within days, some can take up to 28 days to process
3. Individual applications: Each property owner (including spouses) must apply for their own certificate
4. Timing is crucial: Applications should be lodged at least 28 days before settlement

Important notes for property sellers

• Clearance certificates confirm your Australian residency status for tax purposes
• You can apply as soon as you're considering selling - no need to wait until you have a contract
• The certificate must be provided to the purchaser before settlement
• Certificates remain valid for 12 months from the date of issue (provided your residency status doesn't change)
• If you decide not to sell after obtaining a certificate, there's no obligation to use it

Special circumstances

Different requirements apply for non-individual entities such as super funds, partnerships, trusts, or companies. Additionally, special provisions exist for properties managed by trustees, such as for deceased estates.

Don't delay - act today

With this new requirement now in effect, we strongly recommend applying for your clearance certificate at the earliest opportunity if you're considering selling property here. The process is free and straightforward, but timing is essential to ensure you receive your full sale proceeds at settlement.

Resources

Visit the ATO here.