As of July 1, if your home sells for more than $750,000, you will be required to provide a clearance certificate that proves you are an Australian resident for tax purposes.
This change was quietly introduced during budget reform, and it seems few people have noticed. However, ignorance is not bliss and being unaware of the requirement will not save property owners from the consequences.
“If you fail to obtain a clearance certificate, even if you are an Australian resident, you will be treated as a foreign resident,” Santina Taranto, president of the Australian Institute of Conveyancers, says in an article on Domain. “It’s really a situation of ‘foreign until proven otherwise’.”
If you cannot obtain a clearance certificate in time, the person buying your property is required to withhold 12.5 per cent of the sale cost.
This means that if you’re selling a house for $750,000 (the bottom of the range), you could miss out on $93,750. This percentage is then passed on to the ATO.
It’s called the foreign resident capital gains withholding (FRCGW) rate and threshold. It exists to prevent foreign residents from buying up and disposing of “certain taxable Australia property” without passing on some of the proceeds to the ATO.
The first version of the FRCGW was implemented in 2016; back then, the clearance certificate was only required for properties selling for more than $2 million, and only 10 per cent of the purchase price was required to be withheld.
Now the threshold has been lowered and, according to GlobalX chief executive Peter Maloney, up to 60 per cent of the Australian property market could be impacted by this new requirement.
Based on median home prices, Sydney home owners will likely be the hardest hit, with those from Melbourne and the Gold Coast following close behind.
The problem is that a lot of Australians aren’t aware of this big change.
The responsibility to provide the clearance certificate falls squarely on the vendor. The certificates are valid for 12 months, but for those who don’t sell off properties by the handful this will offer little comfort.
Applications can be lodged online, and the current turnaround time is anywhere from a few hours to two weeks.
However, with more and more properties being affected, wait periods for a clearance certificate could increase exponentially.
There is no grace period; anyone going to auction or signing a new contract from July 1 will be subject to this new rule.
You can apply for a clearance certificate through the ATO website.