Are you an Australian citizen or permanent resident selling property in Australia?
If so, you will need to provide a Foreign Resident Capital Gains Withholding Clearance Certificate (FRCGW Certificate) to purchasers prior to settlement.
To obtain a certificate, you or your conveyancing solicitor can apply for one from the Australian Tax Office (ATO). The ATO will then issue you with the ‘clearance certificate’ within 28 days or less.
What is a clearance certificate?
From 1 January 2025, legislation requires 15% of the purchase price (aka ‘Capital Gains Withholding Tax’) to be withheld by the purchaser, and paid to the ATO for all contracts of sale where the vendor is a foreign person.
However, non-foreign vendors can be exempted from this by applying for a clearance certificate from the ATO. A clearance certificate will notify the purchaser and the ATO that the Capital Gains Withholding Tax does not need to be withheld from the proceeds of the sale.
Who needs a clearance certificate?
All vendors listed on the Certificate of Title will require a clearance certificate each. A clearance certificate is generally valid for 12 months from the date of issue.
Clearance certificates can take up to 28 days to issue and therefore should be applied for as soon as possible. To aid a quicker return of the clearance certificate, you should have your Tax File Number ready when applying for the certificate.
How does it affect the purchasers and vendors under a contract of sale?
As above, if the clearance certificate has been obtained, purchasers will not be required to withhold 15% of the purchase price from the property settlement transaction. This also means vendors will be able to receive full settlement proceeds of at settlement.
If you are an Australian citizen or permanent resident and you do not apply for a clearance certificate, then the purchaser must still withhold 15% of the sale proceeds to the ATO. You can then request for a refund of this withheld 15% tax from the ATO when you lodge your next income tax return.
This means if your settlement occurs in August and 15% of your sale proceeds have been withheld, you will not have access to those funds until you successfully complete your tax return in the following financial year, which is over 10 months away.
How can W Legal Group help?
At W Legal Group, our team of experts can assist you with your FRCGW clearance certificate application to avoid potential delays and ensure all purchaser and vendor obligations are met. Reach out to us at hello@wlegalgroup.com.au or call us at +61 3 9590 618 to find out more!
