Understanding the ATO Clearance Certificate Requirement for Property Transactions Over $750,000
When purchasing property in Australia, both buyers and sellers must be aware of certain tax obligations outlined by the Australian Taxation Office (ATO). A key regulation under section 14-220(1) of the withholding law demands attention for property transactions exceeding $750,000. This is particularly important for sellers because it involves the ATO Clearance Certificate—a crucial document to manage withholding tax during property settlements.
What is an ATO Clearance Certificate?
An ATO Clearance Certificate is a document required for sellers to prove they are not foreign residents. Without this certificate, any property transaction exceeding the threshold of $750,000 is subject to a withholding tax of 12.5% of the purchase price. This means that if the clearance certificate is not presented to the buyer’s solicitors before settlement, buyers are legally required to withhold 12.5% of the purchase price and remit it to the ATO.
Upcoming Changes in 2025
From January 1, 2025, all properties sold, regardless of the price, will require an ATO Clearance Certificate. This change underscores the necessity for all sellers to understand and prepare for these requirements.
What Sellers Need to Know
Under the terms of the Real Estate Institute of Queensland (REIQ) contract, by signing the contract, the seller gives the buyer an irrevocable direction to withhold the necessary amount for the Capital Gains Tax (CGT) if a clearance certificate is not provided at settlement. Sellers should note that the withheld amount must be paid to the ATO within two business days following the settlement.
How to Obtain an ATO Clearance Certificate
Sellers can apply for the clearance certificate directly through the ATO’s website. Alternatively, they can engage their solicitors or real estate agents to handle this process on their behalf before the settlement to ensure compliance and smooth processing of the sale.
Conclusion
Understanding these tax obligations is crucial for anyone involved in selling or purchasing property. As the 2025 changes approach, preparing ahead and ensuring all necessary documents are in order will provide a smoother, more secure transaction process. Sellers, especially, need to be proactive about obtaining their ATO Clearance Certificates to avoid potential delays or financial discrepancies during the settlement.
For further information or assistance, feel free to contact Loyal Keeper Group or visit the ATO's official website.
