A clearance certificate provides certainty to purchasers regarding their withholding obligations. It confirms the withholding tax is not applicable to the transaction.
The purchaser must withhold 12.5% of the purchase price in transactions involving taxable Australian real property, or an indirect Australian real property interest that provides company title interests, with a market value of $750,000 or more, unless the vendor shows the purchaser a clearance certificate from the Australian tax office.
It is the vendor’s responsibility to obtain the clearance certificate and provide it to the purchaser at or before settlement. To avoid unanticipated delays, and to ensure the certificate is valid at the time it is given to the purchaser, vendors seeking a clearance certificate should
Without being presented with a valid clearance certificate, the purchaser will be required to remit 12.5% of the purchase price to the tax office, if you do not make the application prior to the sale date, you will not be able to avoid paying the 12.5%.
When to obtain a clearance certificate
An entity may apply for a clearance certificate at any time they are considering the disposal of taxable Australian real property. This can be before the property is listed for sale.
You should apply for a clearance certificate online at least 28 days before you require it.
How long it takes
We issue clearance certificates within 28 days of receiving the application.
Higher risk and unusual cases may also require greater manual intervention, which could take longer.
If you lodge your application close to the settlement date, we cannot guarantee we can process it by the settlement date as we will not disadvantage those other applicants who applied earlier by delaying their application to process yours.
Valid clearance certificate
A clearance certificate is valid for 12 months from the date of issue. It’s only valid for the listed vendor and clearance certificate period on the certificate.
As long as the clearance certificate is provided by the vendor to the purchaser during the time specified on it, and that this is before settlement occurs, then it does not matter how long into the future the settlement may be. The purchaser does not have to withhold.
All parties on the Certificate of Title will require a clearance certificate. For example, joint tenants or tenants in common will need to fill out a form each. It is the vendor’s responsibility to provide the purchaser with the clearance certificate and ensure it’s valid.
What name should be on the clearance certificate
Vendors must ensure the details on their clearance certificate application are accurate, so the clearance certificate is issued in the correct name as that shown on the Certificate of Title of the property.
For the purchaser to rely on the clearance certificate, the following three conditions must be met:
- The name of the vendor on the certificate must match the name on the certificate of title.
- The date the certificate is given to the purchaser must be a date that falls within the time period shown on the clearance certificate
- The clearance certificate must be provided to the purchaser before settlement.
When a purchaser receives a clearance certificate from a vendor that is valid, they can rely on it and not withhold. There is no need for the purchaser to question the residency of the vendor.
If the clearance certificate doesn’t meet the above conditions, the purchaser is required to withhold 12.5% of the purchase price.
Although it’s not necessary for the purchaser to check the validity of clearance certificates with us before deciding to withhold the 12.5% amount from the purchase price, they could decide to do so.
Do the rules apply if the market value of the asset acquired is exactly $750,000?
Yes, the transaction will only be excluded from the rules if the market value of the taxable Australian real property or company title interest acquired is less than $750,000.
Estimated market value $750,000 or above
If the vendor is uncertain whether the $750,000 threshold will be reached (for example, because the property is going to auction or a sales contract is yet to be signed) the vendor may wish to be conservative and apply for a clearance certificate. If the property is then sold for less than $750,000, the vendor doesn’t need to provide the purchaser with the clearance certificate.
There are a variety of other circumstances to take into consideration for Capital Gains withholding clearances. Such as the contact date exceeds 12 months or if there are multiple titles affiliated with the property.
We recommend coming in and speaking with Jade our in house specialist in residential conveyancing and property law, she has over 10 years experience and will ensure that your sale or property purchased will be smooth and hassle-free with the best result for you in mind.