As of January 1, 2025, all Australian residents for tax purposes must provide a clearance certificate when selling property of any kind. If the seller fails to provide a clearance certificate, the buyer must legally withhold 15% of the sales price to be sent to the Australian Taxation Office (ATO).
Previously, this applied only for properties valued in excess of $750,000, with a withholding rate of only 12.5%. This change has been implemented to ensure that foreign (and by default, resident) property owners meet their Australian tax obligations, which means this will also impact Australian property owners.
Obtaining a certificate
Clearance certificates can be obtained free of cost through the ATO. Sellers will need to supply basic details such as name, tax file number and certain property details. Most certificates are issued within a few days, however the process may take up to 28 days in some cases.
Clearance certificates are valid for 12 months, provided that the seller’s residency status does not change. The seller must provide their clearance certificate to the buyer before the date of settlement.
Consequences and outcomes
If a clearance certificate is not provided prior to the settlement, then 15% of the sales price must be withheld and provided to the ATO. It’s important to note that this does not increase or decrease the cost for the buyer, only reduces the net cash received at settlement by the seller.
The 15% withholding is held by the ATO and made unavailable to the seller until their end of financial year (EOFY) tax return is lodged and processed for a refund.
Given the average Australian house price of $985,900 according to the Australian Bureau of Statistics, the 15% withholding can amount to hundreds of thousands of dollars, depending on the sale price. In addition to the other costs and taxes associated with selling property, this can result in a major interruption in cash flow for property investors and homeowners.
Key takeaways
Although obtaining a clearance certificate is a simple process, the consequences of failing to provide one can be dire. It’s imperative for all homeowners and property investors to plan ahead and apply for a clearance certificate if they plan to sell property within the next 12 months.
The professional tax accountants at Optima Partners can assist with clearance certificate requirements, as well as other tax complexities related to property sales.
If you’re planning on buying or selling property, contact Optima Partners now to discover how we can help.
