Purchasers who enter into a contract for sale to purchase real estate and certain other property valued over $2 million, will be required to withhold and pay 10% of the purchase price to the ATO unless the vendor obtains an ATO clearance certificate and provides that to the purchaser.
Put simply, if the vendor is a foreign resident, the purchaser will be required to pay 10% of the sale proceeds to the ATO. If however the vendor is an Australian resident then obtaining and providing an ATO clearance certificate to the purchaser will remove the requirement for the purchaser to withhold the 10% from the sale proceeds.
The ATO is currently implementing an automated online process for issuing clearance certificates which will involve:
- the vendor (or their agent) completing an online ‘Clearance Certificate Application for Australian Residents’ form;
- the information entered into the application being automatically checked against the information held by the ATO to assess if the vendor should be treated as an Australian tax resident for the purposes of the transaction;
- the issuance to the vendor of a clearance certificate (timing is between 2 to 28 days depending on whether manual processing is required); and
- the clearance certificate will be valid for 12 months and must cover the time the transaction is entered into.
Although not clear from the legislation, a new certificate may be required to be obtained from the ATO for each new purchaser. This is relevant where a vendor owns multiple properties being sold.