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When it comes to selling a property in Australia, getting an ATO clearance certificate can help avoid tax withholding issues at settlement. An ATO clearance certificate is an official document issued by the Australian Taxation Office (ATO) that confirms a property seller is an Australian resident for tax purposes.
Not only does it help confirm the seller’s Australian tax residency status, but it can also help prevent the buyer from withholding part of the sale price. This certificate can also be useful when arranging property sale conveyancing in Melbourne, as the required settlement documents need to be prepared in advance.
By getting an ATO clearance certificate early, eligible sellers can help avoid unexpected deductions from their sale proceeds and make the settlement process smoother.
What Is an ATO Clearance Certificate?
An ATO clearance certificate is a document issued by the Australian Taxation Office for Australian residents selling or disposing of Australian real property.
It confirms the seller’s Australian tax residency status for the purpose of foreign resident capital gains withholding. The certificate is provided to the buyer before or at settlement.
This matters because buyers generally have withholding obligations when purchasing certain Australian property from a foreign resident. If an Australian resident seller does not provide the required certificate, the buyer may need to withhold an amount from the sale price and pay it to the ATO.
The certificate is therefore linked to the seller’s tax residency rather than simply proving ownership of the property.
Is an ATO Clearance Certificate Needed to Sell Property in Australia?
An ATO clearance certificate is needed when an Australian tax resident plans to sell a property in Australia without having part of the sale price withheld at settlement.
This applies to various types of property, including homes, vacant land, residential property and commercial property. Under the current rules, the buyer may need to withhold 15% of the sale price if the seller does not provide an ATO clearance certificate.
For example, suppose an Australian tax resident sells a property for $800,000. If the required certificate is not provided, the buyer may need to withhold up to 15% of the sale price under the relevant rules. That could mean a significant amount is not paid directly to the seller at settlement.
Obtaining the certificate before settlement can help avoid this withholding where the seller is an Australian resident for tax purposes.
How to Get an ATO Clearance Certificate When Selling Property
Getting an ATO clearance certificate involves a few simple steps. Sellers need to provide the right details to the ATO and make sure the certificate is ready before settlement. The process can be broken down into the following steps.
Step 1: Prepare the Required Information
Before applying for an ATO clearance certificate, gather the information needed for the application. This helps the ATO identify the seller and process the request.
This may include:
- Seller’s full name
- Property details
- Contact details
- Tax file number or Australian business number, where applicable
- Details of the entity that legally owns the property
- Other information requested by the ATO
Make sure the details are accurate and match the property ownership records. Once the required information is ready, the application can be submitted to the ATO.
Step 2: Submit the Application to the ATO
With the required details prepared, you need to submit the ATO clearance certificate application online through the ATO. The ATO recommends applying online, as it is generally the quickest way to submit the application.
The application can also be made before a contract of sale has been entered into. This gives you more time to receive the certificate before settlement.
Step 3: Keep Track of the Application
After submitting the application, keep track of its progress while continuing to prepare for settlement. The ATO states that applications can take up to 28 days to process.
Applying early gives more time to deal with any questions or additional information the ATO may require. Once the certificate is issued, it can then be provided to the purchaser before settlement.
Step 4: Provide the Certificate Before Settlement
Once the ATO clearance certificate has been issued, provide it to the purchaser on or before settlement. This allows the buyer to confirm whether foreign resident capital gains withholding applies to the sale.
If there are multiple sellers, each vendor must lodge their own application for the certificate. This means joint owners cannot submit one application covering all vendors.
Conclusion
An ATO clearance certificate can be an important document when selling Australian property. For Australian residents for tax purposes, providing the certificate helps prevent foreign resident capital gains withholding from being deducted from the sale price.
By applying for the certificate early and providing it before settlement, you can help avoid unexpected withholding and keep the property sale process on track.
Are you preparing to sell a property and need help with property sale conveyancing in Melbourne? Goodwill Conveyancing can assist with the conveyancing process and help keep the required settlement documents organised.
Frequently Asked Questions
Does a joint property owner need a separate ATO clearance certificate?
Yes. Each vendor must lodge their own application when multiple owners are selling the same property. The ATO does not allow joint applications for vendors involved in the same property transaction.
Is an ATO clearance certificate needed for an investment property sale?
An ATO clearance certificate can apply when an Australian resident sells an investment property because the rules cover Australian real property, including residential and commercial property. The property’s use as an investment does not by itself remove the requirement.
Does the property sale price affect the need for an ATO clearance certificate?
The previous threshold for foreign resident capital gains withholding was removed from 1 January 2025. The current rules therefore apply to relevant property contracts regardless of the previous $750,000 threshold.
What information is needed to apply for an ATO clearance certificate?
The application can require information such as the seller’s name, contact details, property information, entity type and tax identification details where available. The seller’s name should correspond with the ownership information for the property.
What happens if an ATO clearance certificate is not provided before settlement?
If an Australian resident seller does not provide the required certificate, the purchaser may need to withhold up to 15% of the sale price under the foreign resident capital gains withholding rules. An Australian resident who has an amount withheld can generally claim the amount through their tax return, subject to their circumstances.
Does the ATO clearance certificate have an expiry date?
Yes. The ATO states that a clearance certificate is valid for 12 months from the date it is issued. This means a seller may apply before entering into a contract, provided the certificate remains valid when it is needed for the property transaction.
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