New Property Sale Rules: Avoid 15% Withholding with a Clearance Certificate
If you’re an Australian resident planning to sell property, you’re likely to hear about clearance certificates and the Foreign Resident Capital Gains Withholding (FRCGW) rule. In this article, we’ll explain why this certificate is so important, when to apply for one, and how it impacts your property sale.
What Has Changed?
From 1 January 2025, the withholding rate for the FRCGW will increase from 12.5% to 15%. This applies to all property transactions not just those valued at $750,000 or more as was the case before 1 January.
If Australian residents fail to provide a valid clearance certificate to the purchaser at or before settlement, the purchaser must withhold 15% of the sale price and remit it to the ATO. This increase makes it crucial to apply for a clearance certificate well in advance of settlement to avoid delays in accessing your funds.
What Is a Clearance Certificate?
A clearance certificate is an official document issued by the Australian Taxation Office (ATO) that confirms your status as an Australian resident for tax purposes. If you’re selling real property—such as residential or commercial property, land, or mining rights—you must provide this certificate to the buyer at or before settlement.
Without a clearance certificate, the purchaser is legally obligated to withhold 15% of the sale price and remit it to the ATO. This applies even if you’re an Australian resident who simply hasn’t provided the certificate in time.
Why You Need a Clearance Certificate
The clearance certificate ensures that FRCGW does not apply to your sale. This rule was introduced to prevent foreign residents from avoiding tax obligations on Australian property sales. However, it applies to all property transactions unless the seller can prove their Australian residency.
If you fail to provide the certificate before settlement, the purchaser must withhold 15% of the sale price and send it to the ATO. You’ll then need to wait until after filing your tax return to claim the withheld amount back—potentially delaying plans for purchasing a new home or reinvesting your funds.
How to Apply for a Clearance Certificate
Here’s a quick guide to ensure you’re prepared:
- Apply Early
Clearance certificates are free and valid for 12 months. Most are issued within a few days, but it can take up to 28 days in complex cases (e.g., when your tax returns are overdue or your details don’t match ATO records). Apply as soon as you decide to sell to avoid delays. - Application Process
- Individual vendors can apply online through the ATO.
- If you’re part of a couple or group, each vendor must apply separately.
- Legal practitioners, conveyancers, or tax agents can assist with the application.
- Ensure Correct Details
The name on your certificate must match the property title. If your name has changed, update your details with the ATO before applying.
Avoiding Common Pitfalls
Failing to apply early can result in a withholding that’s difficult to reverse quickly. Each property owner must have their own clearance certificate—even if the property is jointly owned. If your settlement is delayed past the certificate’s expiry, you’ll need to reapply.
The Cost of Delay: A Real-Life Example:
Willow and Stanley, Australian residents, are selling their home for $600,000. Willow applies for her clearance certificate early, but Stanley delays and doesn’t have his certificate ready by settlement. As a result, the buyer must withhold 15% of Stanley’s share of the sale—$45,000—and remit it to the ATO. Stanley will only receive this amount after lodging his tax return, causing an unnecessary delay in accessing funds.
What Types of Property Are Affected?
The withholding rules apply to various property types, including:
- Residential and commercial properties
- Vacant land
- Mining, quarrying, or prospecting rights
Need Help Navigating the Process?
At Farrell Goode Solicitors, we understand that selling property can feel overwhelming, especially with the added requirement of clearance certificates. Our experienced team can guide you through the process, ensuring all paperwork is completed correctly and on time. Let us handle the details, so you can focus on your next chapter.
For expert advice and support with your property sale, Contact Us today. We’ll help make your transaction as smooth as possible.
