In this blog we discuss why you NEED an ATO Clearance Certificate in QLD when selling a property....
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Hi everybody - George Sourris, Empire Legal.
Today's topic: ATO Clearance Certificates: why you need them!
Let's jump straight in. As at 01 July, 2017 (we're going back about six years), the law was changed to oblige that any property transaction in Queensland where the sale price is $750,000 or more, the vendor must produce an ATO Clearance Certificate, prior to Settlement.
Now, what is an ATO Clearance Certificate? It's a certificate given by the ATO that gives an exemption for a purchase price withholding amount of 12.5% to be paid to the ATO at Settlement.
So, what does that actually mean? Effectively without this ATO clearance certificate, any property sold for $750,000 or more will attract a 12.5% fee to be withheld and paid to the ATO.
So for example, on a $1,000,000 purchase, you're looking at $125,000 being withheld by the buyer on behalf of the vendor. So in the property transaction, the buyer has an obligation to withhold this money and pay it direct to the ATO; unless the vendor produces a clearance certificate before the settlement date.
In the event that funds are withheld (so the 12.5%), the vendor cannot get that money back until they lodge their next tax return. So obviously, vendors are motivated to go ahead and produce this clearance certificate.
The good news, you can get this certificate for free online off the ATO's website - click here for the direct link. When we represent our vendors here in Queensland, one of the first things we ask them to do is get the ball rolling and apply for the ATO clearance certificate. It takes about five minutes. It's very simple. You just need some personal information. Like name, date of birth, your tax file number, the contract date, and the settlement date.
Again, it won't take you more than five minutes to complete. Now with the ATO it can take up to 28 days for this application to come through. So on a 30 day settlement, you want to get that organised pretty quick. Again, sometimes it can come back in a day or two, but it can take up to 28 days for manual processing.
Now the purpose of an ATO clearance certificate is to capture any foreign vendors, so anyone that's not an Australian Citizen or Permanent Resident for tax purposes will be caught in this process, and the idea is that 12.5% gets paid to the ATO; because what was happening was foreign vendors were selling, taking the sale proceeds, going overseas, not paying their tax obligations to the ATO. So the whole point of this is to catch that.
Another thing to keep in mind, once you've got an ATO clearance certificate, it is valid for 12 months and it can be used for multiple sales. You want to make sure as well that every vendor or entity on the title search has its own clearance certificate. So for example, if it's John and Julie, John needs a clearance certificate, Julie needs a clearance certificate. If it's ABC Proprietary Limited and XYZ Proprietary Limited, both of those entities will need a clearance certificate, or the full 12.5% will have to be withheld.
Don't let this be the road bump that slows down your property transaction. It's something, like I said, it's a five minute job. Your conveyancers should be telling you to get on this ASAP. Again, this is one of the first things we instruct our clients to do, and then we have a follow up process so that we don't miss these deadlines, and that you can produce this certificate and hold that money because sometimes that 12.5%, you might need that to pay out your loan and it's going to have huge implications on your settlement.
So again, nice, easy one.
We get it done.
Smooth sailing, conveyancing -Empire Legal.
Thank you guys. See you on the next one.
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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.