Selling? Get your ATO clearance certificate or risk 15% Withholding tax on Property Sales

In 2025 every seller of every property will need to have a clearance certificate from the ATO confirming they’re an Aussie resident for tax purposes. No certificate? Buyer must send 15% of the agreed sale price directly to the ATO. You might only get it back at tax time. 

Effective 1 January 2025, the Australian Taxation Office (ATO) has introduced updates to the Foreign Resident Capital Gains Withholding (FRCGW) rules. These changes affect all property sellers, eliminating the previous $750,000 threshold and increasing the withholding rate to 15%. This aim to enhance the collection of tax liabilities from non-residents selling property in Australia but also carry significant implications for Australian residents. Whether you're a buyer or a seller, understanding these new regulations is crucial to ensuring smooth and compliant property transactions. 

Key Changes to the FRCGW Rules

1. Removal of the $750,000 Threshold

• Previously, the FRCGW rules applied only to properties sold for $750,000 or more. This threshold has now been removed, meaning the rules apply to all property transactions, regardless of the sale price.

2. Increase in Withholding Rate

• The withholding rate has increased from 12.5% to 15%, potentially affecting the net proceeds for sellers who do not meet compliance requirements.

What Sellers Need to Know

If you are selling property in Australia, you must obtain a clearance certificate from the ATO to confirm your status as an Australian resident for tax purposes.

• Without a Clearance Certificate
  If you fail to provide this certificate to the buyer before the settlement date, the buyer is legally required to withhold 15% of the purchase price and remit it directly to the ATO. This withholding can have a substantial impact on the funds you receive from the sale. If an amount is withheld from the sale price, the vendor will only receive any refund due after their next income tax return is processed at tax time.

• How to Apply for a Clearance Certificate

  Clearance certificates are issued by the ATO and confirm your residency status for tax purposes.

• Applications can be made online.

• Most certificates are processed within a few days, but some may take up to 28 days.

• Certificates are valid for 12 months, so you can apply early, even before you’ve listed your property for sale

• Foreign resident vendors may be able to apply to vary the withholding rate.

What Buyers Must Be Aware Of

Buyers now have a legal obligation to ensure compliance with the FRCGW rules.

• Withholding Obligation
  If the seller does not provide a clearance certificate by the settlement date, the buyer must withhold 15% of the purchase price and transfer it to the ATO.

• Penalties for Non-Compliance
  Failure to withhold the required amount may result in penalties equal to the amount that should have been withheld.

Seek Professional Advice

For both sellers and buyers, consult a tax or legal professional to fully understand how these changes might affect your circumstances.