WHEN selling property in Australia, homeowners may be surprised to learn that a tax rule designed to ensure foreign residents pay capital gains tax can also affect local sellers.
Under the Australian Taxation Office’s Foreign Resident Capital Gains Withholding (FRCGW) regime, buyers must withhold 15 per cent of the sale price if the seller cannot provide a valid clearance certificate confirming they are an Australian tax resident. Although the rule targets foreign owners, Australian residents who don’t obtain the certificate before settlement can be caught out.
A clearance certificate confirms that the vendor is an Australian resident for tax purposes, and removes the buyer’s obligation to withhold any portion of the sale proceeds.
Without it, the buyer must send 15 per cent of the price directly to the ATO – even if the seller is unquestionably a resident. While the seller can later reclaim the withheld amount through their tax return, the process can lead to unnecessary delays and cash flow issues.
The requirement applies to all taxable Australian real property, including vacant land, residential and commercial properties, and certain indirect interests such as shares in land-rich companies.
It now covers every property sale, following the removal of the former $750,000 threshold.
Fortunately, securing a clearance certificate is quick and straightforward. Sellers can apply online through the ATO, with most certificates issued within a few days.
The certificate is free, easy to complete, and valid for 12 months – meaning it can be reused for multiple sales during that period, provided the seller’s residency status doesn’t change.
While the FRCGW rules may seem like additional red tape, applying early for a clearance certificate ensures a smooth, hassle-free settlement. The process is simple, and guarantees sellers receive their full proceeds.
