Clearance Certificates: What You Need to Know
Table of Contents
Introduction
What is Foreign Resident Capital Gains Withholding?
What Has Changed From 1 January 2025?
What This Means for Buyers and Sellers
Why Has the Government Introduced These Changes?
When to Apply
How to Apply
How to Get Withheld Money Back
Exemptions from the New Rules
What You Need to Do Now
Introduction
Selling property in Australia just got a little more complicated—and if you're not careful, it could cost you thousands.
Whether you're buying or selling, these new rules affect you.
The Australian government is cracking down on foreign resident tax compliance, and from 1 January 2025, changes to Foreign Resident Capital Gains Withholding (FRCGW) could significantly impact property transactions.
Here’s what’s changing, what it means for you, and how to ensure you’re compliant.
What is Foreign Resident Capital Gains Withholding?
The Foreign Resident Capital Gains Withholding (FRCGW) regime requires buyers to withhold a portion of the purchase price when acquiring property from foreign residents. This acts as a prepayment of capital gains tax (CGT), ensuring that non-residents meet their tax obligations before funds leave the country.
Previously, this didn’t impact most property transactions—but that’s about to change.
What Has Changed From 1 January 2025?
The ATO has introduced two major changes:
✅ Increased withholding rate – The tax withheld will rise from 12.5% to 15% of the purchase price.
✅ Removal of the $750,000 threshold – Previously, only properties valued at $750,000 or more were affected. Now, all property transactions—no matter the value—must comply.
These changes mean that every seller of real estate in Australia must now provide a clearance certificate—or risk losing 15% of their sale proceeds upfront.
For detailed information, refer to the ATO's overview on Foreign resident capital gains withholding.
What This Means for Buyers and Sellers
For Vendors (Sellers):
🔹 All vendors must apply for a Clearance Certificate from the ATO—even Australian residents.
🔹 If you don’t have a Clearance Certificate at settlement, the purchaser must withhold 15% of the sale price and send it to the ATO.
🔹 If you’re eligible, you can claim back the withheld amount when you lodge your tax return—but this could take months.
For Purchasers (Buyers):
🔹 You must obtain a copy of the seller’s Clearance Certificate.
🔹 If the vendor doesn’t provide one, you must withhold 15% of the purchase price and remit it to the ATO.
🔹 Failing to withhold when required can result in penalties of up to $40,000!
💡 Pro tip: The Clearance Certificate application can be a pain, so sellers should apply well in advance to avoid settlement delays.
Purchasers must obtain a copy of the seller’s clearance certificate before settlement to avoid being hit with penalties. For more details, see the ATO's guidance on Australian residents and clearance certificates.
Why Has the Government Introduced These Changes?
The ATO isn’t making these changes for fun—it’s all about tightening compliance and ensuring foreign property sellers meet their Australian tax obligations.
🚀 Government’s official reasons:
✔️ Prevent foreign residents from avoiding capital gains tax by claiming they are Australian residents.
✔️ Improve tax enforcement and compliance in the real estate sector.
💡 Our take?
✔️ These changes ensure all property sellers have up-to-date tax records before settlement.
✔️ They reduce tax evasion, ensuring the ATO gets its fair share.
When to Apply
🏠 As soon as you’re considering selling your property.
📆 Certificates are valid for up to 12 months, so applying early avoids settlement headaches.
How to Apply
🔹 Apply via the ATO website.
🔹 Speak to your accountant or tax advisor for assistance.
How to Get Withheld Money Back
If you’re a seller and the buyer has withheld 15% of your sale price, you may be able to claim it back when you lodge your tax return.
But what if there’s a dispute? Lawyers will likely get involved, especially if the contract didn’t clearly outline responsibilities.
👨⚖️ Legal considerations:
✔️ Depends on contractual agreements between buyer and seller.
✔️ If withholding was done incorrectly, disputes may arise over windfall gains or unjust enrichment.
✔️ The ATO has increased enforcement, including checking for outstanding tax debts and Medicare Entitlement Statements.
Exemptions to the Rules
Some transactions are exempt from these withholding rules, including:
✔️ Relationship breakdowns (e.g., divorce property settlements).
✔️ Deceased estates – where a beneficiary or joint tenant inherits the property.
✔️ Income tax-exempt entities (e.g., registered charities) with a private ruling.
Even if you believe you’re exempt, check with your accountant to avoid surprises.
What You Need to Do Now
✅ For Vendors: Apply for a Clearance Certificate as soon as you consider selling—don’t leave it until the last minute.
✅ For Purchasers: Always ask for the seller’s Clearance Certificate before settlement to avoid being hit with penalties.
✅ For Everyone: Speak to your accountant or tax advisor early in the process to ensure compliance and avoid costly surprises.
The ATO is serious about enforcing these new rules, so take action now to stay ahead of the game.
Got questions? Need help applying for a Clearance Certificate? Drop a comment below or speak with your accountant today.
