Australian residents selling real property will need to obtain a “Capital Gains Clearance Certificate” prior to settlement to avoid incurring the 12.5% non-final withholding tax that is applicable to foreign residents. The Australian Taxation Office (ATO) requires 12.5% of the sale price to be withheld by the purchaser unless the vendor produces the clearance certificate indicating that they are an Australian resident. New rules for foreign resident capital gains withholding (FRCGW) apply to vendors disposing of certain taxable property under contracts entered into from 1 July 2017. The changes will apply to real property disposals where the contract price is $750,000 and above (previously $2 million) and the FRCGW withholding tax rate will be 12.5% (previously 10%).
A clearance certificate notifies the purchaser not to withhold foreign resident capital gains from the sale of taxable Australian real property (the asset). The application form also provides the details of vendors so we can establish their tax residency status. Where there are multiple vendors disposing of the asset, each vendor should apply for a separate clearance certificate in their name only.
The entity with the legal title to the asset is required to obtain the clearance certificate. If the legal title of the property is in the name of a trustee holding the property on behalf of a trust or superannuation fund, the trustee should apply for the certificate, not the trust or super fund.
A vendor can apply for the clearance certificate online (preferred and providing faster processing) or by paper form. The application needs to be completed and lodged with us as early as practical. The vendor will need to provide the purchaser with the ATO-issued clearance certificate. This must be on or before the day of settlement of the sale of the asset to ensure no withholding occurs.
View more information and access the form at ato.gov.au/FRCGW.