What is an ATO Tax Clearance Certificate?

What is an ATO Tax Clearance Certificate?

When you sell property for a purchase price of $750,000.00 or more, you are required under the terms of the Contract to give the Buyers an ATO Tax Clearance Certificate prior to settlement.

Any property that is sold below the threshold purchase price of $750,000.00 does not require an ATO Tax Clearance Certificate.

What is an ATO Tax Clearance Certificate? This certificate is confirmation from the Australian Tax Office (the “ATO”) that the Buyer is not required to pay part of the sale funds directly to the tax office on behalf of one or more of the Sellers.

If an ATO Tax Clearance Certificate is not provided for each Sellers prior to settlement, then the Buyer’s legal representative must pay to the ATO 12.5% of the purchase price to the ATO at settlement out of your sale funds.

So if you sell your property for $750,000.00, and you don’t provide an ATO Tax Clearance Certificate to the Buyer, 12.5% of $750,000.00 adds up to a whopping $93,750.00 that is deducted from your sale proceeds and paid to the tax office on settlement. Obviously the higher the sale price, the higher the amount to be withheld.

The good news is it is easy to obtain an ATO Tax Clearance Certificate. The quickest way to apply is online directly through the ATO website. Clearance Certificates can take up to 28 days to issue so we recommend applying as soon as practicable. An ATO Tax Clearance Certificate will remain valid for 12 months from the date of issue so even if your first sale Contract fails to proceed to settlement, the certificate will in most instances remain valid for the duration of a subsequent sale Contract.

You will need the following information to complete the online form to apply for an ATO Tax Clearance Certificate:

  1. Tax file number for each of the Sellers;
  2. ABN if the Seller is a Company;
  3. Contact details for each of the Sellers (address, email, phone number);
  4. Date of Contract (or expected Contract Date if there is no signed Contract yet);
  5. Anticipated Settlement Date.

You must apply for a separate ATO Tax Clearance Certificate for each of the registered owners on the property title (who should be the same as the Sellers in the Contract). If the property is registered in two or more individual names, then you will need to provide two ATO Tax Clearance Certificates – one for each person.

If the property title is registered in the name of a Company then the registered entity must still provide an ATO Tax Clearance Certificate prior to or at settlement.

For assistance with obtaining an ATO Tax Clearance Certificate please contact Kim Matheson, our senior Conveyancer at North Coast Law Beerwah, at kim@nclaw.com.au or 07 5494 8544.