ATO Clearance Certificates: What Victorian Property Sellers Need to Know
If you are selling property in Victoria obtaining an ATO clearance certificate is now an important part of preparing for settlement.
From 1 January 2025 a purchaser must withhold 15% of the purchase price and pay it to the Australian Taxation Office unless the vendor provides a valid clearance certificate before settlement. This requirement applies to property sales of all values.
What is an ATO clearance certificate?
An ATO clearance certificate confirms that a vendor is an Australian resident for foreign resident capital gains withholding purposes.
Despite its connection with foreign resident withholding, Australian resident vendors also need to obtain a certificate. It allows the purchaser to pay the full settlement proceeds without withholding 15% of the purchase price.
Who needs a clearance certificate?
Each person or entity named as a vendor must obtain their own clearance certificate.
For example if a property is owned by two people both vendors require separate certificates. If the registered owner is a company or trustee the certificate must be issued in the correct legal name of that entity.
When should you apply?
I recommend applying as early as possible once you decide to sell or enter into a Contract of Sale.
Many applications are processed quickly when the information provided matches the ATO’s records. However, some applications require further review and the ATO recommends allowing up to 28 days for processing.
A clearance certificate is generally valid for 12 months so there is no need to wait until immediately before settlement to apply.
What happens if a certificate is not provided?
If a valid clearance certificate is not provided by settlement the purchaser is generally required to withhold 15% of the purchase price and pay that amount to the ATO.
The withholding is calculated on the purchase price not simply the vendor’s profit or the amount remaining after payment of the mortgage. This can significantly reduce the funds available to the vendor at settlement particularly where the sale proceeds are needed for another purchase.
The vendor may be able to claim a credit for the amount withheld when lodging their income tax return but that does not prevent the immediate impact on their settlement funds.
Does a clearance certificate mean no capital gains tax is payable?
No. A clearance certificate only relates to the purchaser’s obligation to withhold part of the purchase price.
It does not determine whether the vendor will have a capital gains tax liability. Vendors should obtain advice from their accountant or tax adviser about their individual taxation circumstances.
How I can assist
As part of the conveyancing process I can help ensure the clearance certificate requirement is identified early and dealt with before settlement.
If you are considering selling a property in Victoria please contact me to discuss the conveyancing process and how I can assist.
This information is general in nature and does not constitute legal or taxation advice. Requirements may change, and advice should be obtained for your individual circumstances.