by Robecca Cunningham
Why do I need a clearance certificate? A withholding tax (of 12.5% of the purchase price) applies to anyone who enters into a contract to buy property in Australia for $750,000 or more, unless the each of the Australian resident vendors nominated on the Contract provide a clearance certificate issued under the Taxation Administration Act 1953 (Cth).
Australian resident entities who are selling real property may apply for clearance certificates. Separate clearance certificates will be required for each vendor, however, only Australian resident vendors may apply.
Applications for clearance certificates may be made online at:
Determine whether you are a foreign resident
The Australian Taxation Office has developed an online tool to determine whether you are a foreign resident for tax purposes. This is available at:
If you are a foreign resident vendor, and therefore not entitled to a clearance certificate, you may be entitled to a variation of the rate of withholding tax to be applied. You can find information and an application to vary the foreign resident capital gains withholding rate at:
If a foreign resident vendor is successful in obtaining a variation notice, the rate of withholding will be the rate specified on the variation notice rather than 12.5%.
Where there are multiple vendors disposing of an asset it becomes more complex. To reduce or remove the liability for withholding tax, each vendor in the sale of real property must provide either a:
- Clearance certificate; or
Where one (but not all) of the vendors provide a clearance certificate, the withholding obligation will still apply but the Australian Taxation Office will allow the calculation to be based only on the foreign resident’s interest in the property.
For a helpful discussion of calculating the withholding see:
To ensure that the liability for withholding tax will be reflective of the particular circumstances, vendors selling real property should ensure that purchasers are provided with clearance certificates or variation notices for each vendor in the transaction.
The content of this article is intended only to provide a summary and general overview on matters of interest. It is not intended to be comprehensive and does not constitute legal advice. Although all efforts are made to attempt to ensure that the content is current, this is not guaranteed. You should seek legal advice before acting or relying on any of the content.