Selling your home is an exciting milestone, filled with plans for the future. Amidst the styling, marketing, and negotiations, there’s a critical piece of administrative paperwork that is often overlooked but can have a massive impact on your settlement: the Australian Taxation Office (ATO) Clearance Certificate.
Failing to secure this certificate in time isn’t a minor inconvenience. For properties sold for $750,000 or more, it could result in the buyer being legally required to withhold a staggering 15% of the sale price and forward it to the ATO.
At Holdsworth Real Estate, we believe in a smooth, transparent, and successful selling experience. That’s why we want to ensure you’re fully aware of this requirement to protect your funds and guarantee a seamless settlement day.
What is an ATO Clearance Certificate?
The formal name for this document is the Foreign Resident Capital Gains Withholding (FRCGW) Clearance Certificate. Its purpose is to confirm your status as an Australian resident for tax purposes.
This system was introduced to ensure foreign residents meet their capital gains tax obligations when selling Australian property. However, the legislation requires that for every property transaction valued at $750,000 or more, the buyer must withhold 15% of the purchase price unless the seller can provide a valid clearance certificate from the ATO.
This means that even if you are an Australian citizen and have lived here your entire life, you still need to apply for this certificate to prove your residency status and exempt your sale from the withholding rule.
The High Cost of Delays: What Happens Without a Certificate?
Let’s be clear about the financial implications. If you don’t provide a valid clearance certificate to the buyer’s conveyancer by settlement day, the buyer has no choice but to withhold 15% of your sale price.
Consider this example: on a $1,200,000 sale, a massive $180,000 would be withheld from your settlement funds and sent directly to the ATO.
While you can eventually claim this amount back when you lodge your annual income tax return, the delay can cause significant financial stress. That $180,000 could be tied up for months, potentially disrupting your plans to purchase your next home, pay off debt, or make other investments. It’s a cash flow crisis that is entirely preventable.
Timing is Everything: Apply Early!
The single most important piece of advice we can give you is to apply early. The ATO states that processing a clearance certificate can take up to 28 days, and this timeframe can be longer if there are any complications.
To avoid any risk of settlement delays, you should apply for your certificate as soon as you decide to put your property on the market. The certificates are valid for 12 months from the date of issue, so there is no downside to being proactive. Having it ready before you even accept an offer provides complete peace of mind.
Tips for a Smooth Application Process
The ATO has provided some helpful tips to ensure your application is processed as quickly as possible:
- Be Proactive: Apply for the certificate well ahead of your settlement date. The best time is right after you sign the agency agreement to list your property.
- Provide Full Contact Details: Include your email address and phone number on the application. This allows the ATO to contact you quickly if they need to clarify any details.
- Lodge Only One Application: Submitting multiple applications for the same sale will not speed things up. In fact, it clogs the system and can lead to further delays for everyone.
- Ensure Your Tax Affairs are in Order: Delays are common for applicants who have outstanding tax returns or other unresolved matters with the ATO. It’s a good idea to ensure you are up to date before lodging your application.
How to Apply
The application is a straightforward online process. You can lodge it yourself through the ATO website.
- Start your application here: ato.gov.au/clearancecertificateform
Your conveyancer or solicitor can also assist with the application, but it’s vital that you discuss it with them early in the process to ensure it’s not forgotten.
Navigating the complexities of a property sale is our specialty. While we can’t apply for the certificate on your behalf, our commitment is to provide you with the timely advice and reminders you need for a stress-free journey from listing to settlement.
If you’re considering selling and have questions about the process, contact our expert team today for a confidential discussion.