Think you’re all set for settlement? The ATO might disagree. Since Jan 2025, every Aussie property seller needs this one free certificate - or risk losing tens of thousands in withheld tax. Yep, even if your house is worth $300k.

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Hi everybody - George Sourris, Empire Legal.

Today's topic: Why you need an ATO Clearance Certificate when selling a property in QLD

If you're selling a property in Queensland or anywhere in Australia, there's one small document that can have a massive impact on how your settlement day goes. It's called the ATO Clearance Certificate.

This is no longer an obscure tax form, only relevant for high value sales. From 1st of January 2025 onwards, every property sale in Australia needs an ATO clearance certificate, regardless of the sale price. Let's unpack what that means, why you need it, and what happens if you don't get it right.

What is an ATO Clearance Certificate?

An ATO clearance certificate is an official document issued by the Australian Taxation Office (ATO), that confirms you're an Australian resident for tax purposes, or otherwise entitled to sell without compulsory tax withholding. It is used to tell the buyers or their solicitors / conveyancers that no part of the sale proceeds needs to be withheld and paid directly to the ATO, under the Foreign Capital Gains Withholding Regime.

What changed on 01 January 2025?

Before 2025, ATO clearance certificates were only required if a property was sold for $750,000 or more. But as at 01 of January 2025, the $750,000 threshold has been removed, so every property sale in Australia now needs a clearance certificate or equivalent documentation.

The withholding rate has increased to 15% of the sale price if a certificate is not provided - up from 12.5%. That means even a $300,000 unit sale requires a certificate before settlement - no exceptions.

Why this matters - the 15% withholding rule.

If you don't have a valid ATO clearance certificate at or before settlement, the buyer must withhold 15% of the sale price and pay it directly to the ATO. That withholding amount is not yours at settlement, it goes straight to the tax office. You may eventually be refunded that amount via your tax return, but only after lodging your tax return, which can take many months, and of course that's providing you don't owe that money.

For example, on $1,000,000 sale, $150,000 could be withheld if a certificate is not provided in time, tying up funds and potentially delaying your next purchase or move.

Who needs a certificate?

Every seller named on the certificate of title, whether a person or entity, must provide their own ATO clearance certificate before settlement.

If the name's on the certificate don't match exactly with what the ATO has on record, the certificate may not be valid and the buyer could still be required to withhold. So it's important that everybody gets an ATO clearance certificate that's on the title.

How long does it take?

While many certificates are issued quickly, some applications can take up to 28 days or more if the ATO needs to check your tax status or resolve any discrepancies. Clearance certificates are generally valid for 12 months from the date of issue, so you want to get one well before you list your property for sale, in an ideal world.

Also, the clearance certificate is not property specific, meaning if you already have one from a previous recent sale in the last 12 months, you won't need a new one so long as the timeframe has not expired.

Common mistakes that cost sellers:

• Waiting until after a contract is signed;

• not checking the names match the ATO records;

• assuming the rule only applies to homes over $750,000; and

• forgetting that multiple owners each need their own certificate.

Any of these can trigger the 15% withholding rule, even with unconditional contracts.

Empire Legal's practical advice.

• Apply early, ideally when you decide to sell, not after;

• ensure you apply for the certificate in the exact name that's on the title search;

• each seller or entity must apply separately;

• provide the certificate to the buyer or their representative well before settlement; and

• if you're a foreign resident for tax purposes, speak to your accountant early - you may need to deal with some withholding variations.

To summarise.

from 01 Jan 25 ATO clearance certificates are mandatory for all property sales in Australia, no matter the price. They confirm your tax residency status and prevent automatic 15% withholding by the buyer at settlement.

If you don't have one ready, the buyer must withhold the 15% of the sale proceeds and pay it to the ATO, which is often extremely inconvenient and slow to recover. Remember, this is the law. There is no way around it.

If you're preparing to sell your property in Queensland or across Australia, getting your ATO clearance certificate sorted early is one of the first steps you should take. It's simple, free, and can save you heartache at settlement.

By the way, here is the direct link to get started with applying for an ATO clearance certificate. But don't worry if you're a client of Empire Legal's, we'll guide you through this process - providing the link early so you're not stressed leading into settlement. It takes about five minutes to apply. It's very simple. You just need to enter some personal information - name, date of birth, tax file number, contract date, and the settlement date.

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Ladies and gentlemen, please keep in mind that all advice is general in nature and does not constitute legal advice. This is authorised by George Sourris, Empire Legal, Brisbane, Queensland, Australia.

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Note: all information is general in nature and as each matter is unique please contact our office for tailored advices: the above does not constitute legal advice.