Understanding ATO Clearance Certificates and the Latest Updates
Since 2016, the Australian Taxation Office (ATO) has enforced clearance certificate requirements to ensure capital gains tax (CGT) compliance, particularly for foreign residents selling property in Australia. If a seller does not provide an ATO Clearance Certificate before settlement, the buyer must withhold 15% of the purchase price and remit it directly to the ATO.
With the latest changes coming into effect on 1 January 2025, every property sale—regardless of value—will require an ATO Clearance Certificate. Here’s everything you need to know about these certificates, including the application process, legal implications, and compliance requirements.
What Is an ATO Clearance Certificate?
An ATO Clearance Certificate is an official document confirming that a property seller is an Australian tax resident, exempting them from CGT withholding obligations. Initially introduced to prevent foreign sellers from avoiding capital gains tax, this requirement now applies to all property transactions in Australia.
If a seller does not obtain a clearance certificate before settlement, the buyer is legally required to withhold 15% of the purchase price and pay it to the ATO. This can significantly impact a seller’s cash flow and delay access to sale proceeds.
Validity and Reuse of ATO Clearance Certificates
A clearance certificate is valid for 12 months from the date of issue. This means that:
- Sellers can use the same certificate for multiple property sales within that timeframe.
- The certificate applies to the seller entity, not just the property—so as long as your entity remains the same, you don’t need to reapply for each sale.
However, if the certificate expires before settlement, the seller must apply for a new one.
Key Changes to Property Value Thresholds
Over time, the ATO has significantly reduced the property value threshold for clearance certificate requirements:
- 2016: Initially applied to properties valued at $2 million or more.
- 2017: Threshold dropped to $750,000, capturing a broader range of transactions.
- 2025 (New Rules): Threshold is reduced to $0—meaning all property sales now require a clearance certificate, regardless of value.
This latest change affects every property transaction in Australia, reinforcing the importance of compliance.
What Happens If a Seller Fails to Provide a Clearance Certificate?
If a seller does not provide a clearance certificate before settlement, the buyer must withhold 15% of the purchase price and remit it to the ATO. This has two major consequences:
- Sellers Lose Immediate Access to Sale Proceeds – The withheld funds can only be claimed back after lodging a tax return, which may cause significant delays.
- Buyers Risk Penalties – If a buyer fails to withhold and pay the required amount to the ATO, they may be liable for the full CGT withholding amount, plus penalties.
Given these risks, both buyers and sellers must ensure compliance well before settlement.
How to Apply for an ATO Clearance Certificate
The application process for an ATO Clearance Certificate is straightforward and can be completed online via the ATO website.
Step-by-Step Guide:
- Visit the ATO Website – Locate the clearance certificate application form.
- Provide Accurate Information – Include seller entity details, property information, and tax records.
- Multiple Sellers? Each Must Apply Separately – If there are multiple owners, each must submit an individual application.
- Processing Time – In most cases, certificates are issued within minutes, but delays can occur—so apply early.
Implications for Foreign Residents Selling Property
Foreign residents selling Australian property are automatically subject to CGT withholding unless they obtain an exemption.
- Automatic 15% Withholding – If no clearance certificate is provided, the buyer must withhold 15% and pay it to the ATO.
- Not Lost, But Delayed – The withheld amount is offset against CGT liabilities, meaning foreign sellers must claim it back later.
- Professional Advice Is Key – Engaging a tax expert ensures proper compliance and helps foreign sellers minimise tax liabilities.
What Buyers Need to Know
Buyers have legal responsibilities when purchasing property from a seller without a clearance certificate.
- Verify the Certificate – Buyers must check that the certificate is valid and matches the seller entity.
- Withhold and Remit Correctly – If no certificate is provided, buyers must withhold 15% and pay it to the ATO.
- Avoid Penalties – Failure to comply can result in the buyer being held liable for the full withholding amount, plus potential fines.
To navigate these obligations, buyers should consult property lawyers or accountants before settlement.
The Role of Legal & Property Professionals
Given the complexities of CGT withholding laws, working with legal and financial experts is highly recommended.
👨⚖️ Property Lawyers & Conveyancers:
- Ensure clearance certificates are valid.
- Advise on compliance with tax obligations.
- Assist with disputes or ATO communication.
📊 Tax Accountants & Advisors:
- Help sellers apply for clearance certificates.
- Assist foreign residents with CGT obligations.
- Provide tax planning strategies to reduce liabilities.
Final Thoughts: Why Every Seller Needs an ATO Clearance Certificate in 2025
With the new $0 property value threshold taking effect in January 2025, every seller in Australia must obtain an ATO Clearance Certificate before settlement—regardless of the property’s sale price.
📌 For sellers: Applying early avoids withholding issues and ensures smooth settlement.
📌 For buyers: Compliance is critical to avoid financial penalties.
📌 For foreign sellers: Seek professional tax advice to navigate CGT withholding obligations.
Need Help? If you’re selling property and unsure about your tax obligations, Sheppard Advisory can provide expert guidance to keep you compliant. Plus, we can connect you with trusted property lawyers and professionals to support your sale.
Contact us today for expert advice on ATO Clearance Certificates and property tax matters!