As we welcome the new year, Australian homeowners looking to sell their properties are facing a significant tax change that could potentially impact their finances if overlooked. The Australian Taxation Office (ATO) has implemented a new rule that requires all Aussie residents selling property to obtain a clearance certificate, or else face a substantial withholding of their sale proceeds.
This change, which came into effect on January 1, is part of the revised foreign resident capital gains withholding (FRCGW) rules. While these rules aim to ensure non-residents meet their tax obligations when selling Australian property, the latest update has implications for all sellers, regardless of residency status.
Under the new regulations, if a seller fails to provide a clearance certificate at the time of sale, the buyer is obligated to withhold 15% of the sale price and remit it directly to the ATO. This means that for the average Australian home, valued at $814,837, not having a clearance certificate could result in a staggering $122,225 being held back. This is money that sellers won’t see again until they file their next tax return and claim a refund.
The good news is that obtaining a clearance certificate is free and can be done through the ATO’s website. The ATO advises sellers to apply for the certificate early in the selling process, as issuance can take anywhere from a few days to up to 28 days. Once obtained, the certificate is valid for 12 months, giving sellers plenty of time to complete their property transactions without the need to rush.
Previously, the requirement for a clearance certificate only applied to property sales where the value was $750,000 or more, and the withholding rate was set at 12.5%. However, with the threshold now removed and the withholding rate increased to 15%, more sellers will be affected by these rules.
Belinda Raso, director of Tax Invest Accounting, urges those considering selling their property this year to get ahead of the curve and secure their clearance certificate now. She emphasises that even if the sale doesn’t proceed, having the certificate in hand is a no-risk step that can save a lot of potential hassle and financial strain.
Typically, the process of obtaining a clearance certificate is managed by a conveyancer or solicitor as part of the property sale process. However, proactive homeowners can take charge and apply for the certificate themselves to ensure they are fully prepared for a smooth sale.
The changes apply to contracts entered into on or after January 1, 2025, so there is time to prepare. However, given the dynamic nature of the property market and the potential for unexpected sales, it’s wise for homeowners to be aware of these changes and act accordingly.
Have you recently sold a property or are you planning to sell one soon? What are your thoughts on the upcoming tax changes? Share your insights and experiences in the comments to help others stay informed and prepared.
Also read: Get your tax return in by tomorrow or risk fine, ATO says
More red tape and monitoring of our every move, pardon the pun! ….More government paperwork for even some of us who are octogenarians to do, in order to keep Big Brother happy and retain our own money!