What is an ATO Clearance Certificate? There was a time when you sold property and you were an Australian resident you just claimed the 50% discount if you held the property for more than 12 months. You did not have to prove you were an Australian resident, you just self-assessed that you were an Australian resident.
With the passing of time, the goal posts have again been moved. Now apparently you are a foreign resident until you prove otherwise.
How do you prove you are not a foreign resident? Well you need to apply online through the ATO website and complete a Clearance Certificate application form and obtain a Clearance Certificate.
The ATO states on their website that ‘the majority of applications can be obtained within hours’. Generally, you can expect to receive a clearance certificate in less than a fortnight. However, if there are complications, the seller should apply for the certificate immediately to avoid further costs for the buyer.
The need to obtain a clearance certificate is a new change to the capital gains tax for foreign residents.
Originally the need to obtain a clearance certificate was for all property transactions worth more than $2 million and 10% of the purchase price was to be withheld and remitted to the ATO.
From 1 July 2017 Australian vendors selling properties for more than $750,000 will have to prove they are not a foreign resident by obtaining a ‘clearance certificate’.
If a clearance certificate is not obtained before settlement, the buyer would be required to withhold 12.5% of the purchase price.
So basically, even if you are an Australian resident and you do not complete and obtain a clearance certificate – you will be assumed to be a foreign resident and tax will be withheld during settlement and paid to the ATO, the vendor will not receive the full payment for the property.
Please also note that the buyer could face a penalty if they did not withhold when they should.
For more information please see the ATO website
The video below provides a brief overview on the ATO Clearance Certificate changes. This page will guide you through getting your own ATO clearance certificate in detail, as well as give information about the new tax adjustments. But if you need assistance, feel free to call us!
If you have any questions or comments, please feel free to contact Optima Partners – Your Pathway to Personal and Financial Security – on 08 62672200
ZOI YANNAKIS – Accountant