ATO clearance certificate: foreign resident capital gains withholding payments
From 1 July 2016, foreign residents selling Australian property valued at over $2 million were required to pay a 10 per cent withholding tax. This means that you’ll need to obtain an ATO clearance certificate to prove you’re not a foreign resident. If you don’t do this, the purchaser must withhold 10 per cent of the purchase price at settlement price and pay this to the ATO.clearance certificate
However, as of 1 July 2017, the threshold has been reduced to $750,000. And the withholding tax rate has been increased from 10 per cent to 12.5 per cent. The previous threshold and rate continue to apply for any contracts entered into from 1 July 2016 and before 1 July 2017, even if they are not due to settle until after 1 July 2017.
You’ll need to apply for this ATO clearance certificate, prior to the settlement of your property, to recoup the full sale proceeds.
Asset types for which the ATO clearance certificate is required
Real property – taxable Australian real property with a market value of $750,000 or more:
- vacant land, buildings, residential and commercial property;
- mining, quarrying or prospecting rights where the material is situated in Australia;
- the grant of a lease over real property in Australia.
- indirect Australian real property interests in Australian entities whose majority of assets consist of the above mentioned asset types;
- options or rights to acquire any of the above asset types.
Exclusions to the ATO clearance certificate requirement
-> Real property transactions valued less than $750,00;
-> Transactions on an approved stock exchange; and
-> Transactions where the foreign resident vendor is under external administration of bankruptcy.
Validity of the ATO clearance certificate
The ATO clearance certificate is valid for 12 months from the date of issue, so the vendor can use it for multiple property sales.
The clearance certificate may be provided to the purchaser by the settlement date. The purchaser can then rely on the ATO clearance certificate as proof that they are not required to withhold any funds. Once the purchaser has received a copy of the ATO clearance certificate they have met their obligation, even if the vendor’s circumstances change during the settlement period.
All parties on the Certificate of Title will require an ATO clearance certificate. For example, joint tenants or tenants in common will need to fill out two forms. It is the vendor’s responsibility to provide the purchaser with the ATO clearance certificate and ensure it’s valid.
We recommend that you apply for the clearance certificate at least 14 days before you require it so that your sale settlement is not delayed.