Selling your home for over $750K means getting Withholding Clearance Certificate

If you're an Australian resident planning to sell your property for a market value of $750,000 or more, it's crucial to familiarize yourself with the clearance certificate requirement. This one important form you need to complete could save you from paying tens of thousands to the ATO – so you don’t want to miss it!

Understanding the clearance certificate process will help ensure a smooth and compliant transaction and of course, save you those precious dollars. So, if you’re considering selling up and your property is worth over $750k, read on to find out all about the clearance certificate, its purpose, and what you need to do in our handy post below.

Firstly…

What is a clearance certificate?

A clearance certificate is an official document issued by the Australian Taxation Office (ATO) that confirms an individual's residency status for tax purposes. It serves as evidence that the seller (you) is an Australian resident and, therefore, eligible for certain exemptions or withholding tax reductions when selling real estate with a market value of $750,000 or more.

Purpose of the clearance certificate

The clearance certificate ensures compliance with the Foreign Resident Capital Gains Withholding (FRCGW) regime. This requires purchasers to withhold 12.5% of the sale proceeds and pay it to the ATO when acquiring Australian real estate from foreign residents. The clearance certificate confirms that the seller is an Australian resident, exempting them from this 12.5% payment. That’s why it is so important to confirm your residency by completing this important form - and avoid paying huge fees to the ATO!

Do I need a clearance certificate?

If you’re an Australian resident planning to sell real estate with a market value of $750,000 or more, then yes! You must apply for a clearance certificate. This requirement applies to both individuals and entities, such as companies or trusts, provided they meet the residency criteria outlined by the ATO.

How do I apply for a clearance certificate?

To obtain a clearance certificate, sellers need to complete and submit the Clearance Certificate Application for Australian Residents application form to the ATO. This form can be found on the ATO website, and lodged electronically through the ATO's online services or via paper. Applicants must provide accurate information about their residency status, contact details, and the property being sold to avoid delays, implications or unnecessary payments.

Processing times

If the vendor is assessed automatically as being an Australian resident, electronic clearance certificates can be issued within a matter of days. Manual processing can take 14-28 days if there are data inconsistencies or exceptions, so you should consider applying well in advance to allow for any potential delays. Unusual cases and higher-risk submissions could take even longer to process, so make sure you factor these time frames into your sale and settlement process as well.

Validity

Clearance certificates are generally valid for 12 months from the date of issue, and can be used during this period for the sale of multiple properties by the same vendor. If the property remains unsold after this period, sellers will need to apply for a new certificate, so make sure you think about this if the sale of your property is taking longer than expected. It's essential to ensure the certificate remains valid throughout the sale process to avoid potential implications, delays or fees.

What happens if I don’t get a clearance certificate?

If you don’t obtain a clearance certificate when required, it can result in the purchaser withholding and remitting a portion of your sale proceeds to the ATO. This amount is typically 12.5% of the sale price, which could mean a minimum of $93,000 you’re missing out on as the seller – and that’s only IF your property sells at the minimum $750k. A few simple calculations on 12.5% of your property’s potential sale price should get you downloading that form ASAP. Yikes!

Variations

From time to time, a seller who does not qualify for the clearance certificate might apply for a variation to avoid paying the 12.5% to the ATO, if they feel it is inappropriate. This could be either because they are a foreign resident who will be making a capital loss on the transaction, or a foreign resident who does not have an income tax liability because of carried-forward capital losses or tax losses.

What if I don’t know how much my property will sell for?

If you’re thinking of selling but unsure whether or not your property will sell for over $750,000 and thus mean you should apply for clearance certificate, the real estate agent you engage will firstly give you a property valuation and an idea of how much your property could potentially sell for.

Following this, if the exact price could go either side of $750,000 (or you choose to auction your property, for example), it’s best to err on the side of caution and just submit the form for the clearance certificate anyway. It’s better to be safe with the clearance certificate if the sale price does go over $750,000, than to be sorry! (And out of pocket, in a big way).

Who should I talk to?

Complying with the clearance certificate requirement is essential for Australian residents selling real estate with a market value of $750,000 or more, so if you’re selling your property, these associated tax obligations can be complex and touch to navigate (especially if you’ve never done it before).

It's therefore super important you seek professional advice from a registered tax agent (like us!) We can provide personalized guidance, ensure compliance, and help you understand any additional implications or exemptions related to your specific circumstances.

For any questions regarding clearance certificates, selling your property, or any other tax or accounting related queries, please contact us – our friendly team are happy to assist.